If a company incurs an incidental cost related to the purchase of an asset, would it prefer to expense or capitalize the cost under each of the following accounting objectives? $\begin{array}{ll}
&\text { Tax}&\text { Income}\
&\text { Minimization } & \text { Maximization } \
\hline a)&\text { Expense } & \text { Expense } \
b)&\text { Expense } & \text { Capitalize } \
c)&\text { Capitalize } & \text { Expense } \
d)&\text { Capitalize } & \text { Capitalize }
\end{array}$

Question

If a company incurs an incidental cost related to the purchase of an asset, would it prefer to expense or capitalize the cost under each of the following accounting objectives? $\begin{array}{ll}
&\text { Tax}&\text {  Income}\
&\text { Minimization } & \text { Maximization } \
\hline a)&\text { Expense } & \text { Expense } \
b)&\text { Expense } & \text { Capitalize } \
c)&\text { Capitalize } & \text { Expense } \
d)&\text { Capitalize } & \text { Capitalize }
\end{array}$

Quizplus · Accepted Answer

For tax minimization, a company would prefer to expense the cost because it reduces taxable income immediately, leading to lower taxes in the short term. For income maximization, capitalizing the cost spreads the expense over the useful life of the asset, resulting in higher net income in the early years.

If a Company Incurs an Incidental Cost Related to the Purchase