Compared with companies that expense costs, firms that capitalize costs can be expected to report:
A)higher asset levels and lower equity levels.
B)higher asset levels and higher equity levels.
C)lower asset levels and higher equity levels.
D)lower asset levels and lower equity levels.

Question

Quizplus · Accepted Answer

When a company capitalizes costs, it treats them as an investment and adds them to its balance sheet as assets. This increases its asset levels. However, since this does not affect the company's earnings or revenue, its equity levels remain unchanged. Therefore, the correct answer is B, higher asset levels and higher equity levels.

Compared with Companies That Expense Costs, Firms That Capitalize Costs