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:

Variable Costs

Costs that vary directly with the level of production or the volume of services provided.

Special Order

An order for goods or services that is outside the company's normal scope of products or services, often requiring special pricing or terms.

Incremental Costs

The additional costs that are incurred if a certain decision is made or an action is taken.

Incremental Revenue

Additional income received from increasing business activities or sales volumes, often analyzed to decide on new projects or expansions.