If a Company Capitalizes a Cost That Should Have Been

question 130

Multiple Choice

If a company capitalizes a cost that should have been expensed:

• A) expenses will be overstated in the year of the error.
• B) net income will be understated in the year of the error.
• C) assets will be overstated.
• D) revenues will be overstated.

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Definitions:

Return On Investment

A financial metric that calculates the profitability of an investment by dividing the profit (or loss) by the cost of the investment.

Imputed Interest Rate

An estimated interest rate used when the actual interest rate is not known or is not applicable, often used in lease agreements or for calculating the present value.

Divisional Contribution Margin

The difference between sales revenue and variable costs in a specific business division, used to cover fixed expenses and contribute to profits.

Divisional Manager

A manager responsible for overseeing a division within a company, including its resources, operations, and performance.