Capitalizing an Expenditure Rather Than Recording It as a Revenue

question 14

Multiple Choice

Capitalizing an expenditure rather than recording it as a revenue expenditure

• A)affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.
• B)affects the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period.
• C)affects the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet.
• D)has no effect on the book value of plant assets on the balance sheet or the amount of income reported on the income statement.

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Definitions:

365-Day Year

A method used for calculating interest based upon a calendar year, counting all 365 days (or 366 in a leap year), typically used for more precise financial calculations.

Ordinary Simple Interest

Interest calculated on the principal amount of a loan or deposit, based on a simple calculation without compounding.

360-Day Year

An accounting method where the year is assumed to have 360 days, simplifying interest calculation by using 30-day months.

Ordinary Simple Interest Rate

An interest rate calculation where interest is only earned on the original principal, not on accrued interest.