One of the ways companies can mislead investors is to inappropriately capitalize costs. When is it appropriate to capitalize costs?
A) When the work has already been performed.
B) When future economic benefits are associated with the cost.
C) When the good or service being purchased by the company has been received and used.
D) When the good or service purchased by the company has not yet been paid.

Question

Quizplus · Accepted Answer

It is appropriate to capitalize costs when future economic benefits are associated with the cost. This means that the cost is expected to provide a long-term benefit to the company, such as an increase in revenue or a reduction in costs. Capitalizing costs involves recording them as an asset on the company's balance sheet, rather than as an expense on the income statement. However, companies must use judgment and adhere to accounting standards to determine which costs can be capitalized.

One of the Ways Companies Can Mislead Investors Is to Inappropriately