Tim's Tams donated 100 baseball caps to the local homeless shelter.The company will record the donation as an operating expense.The caps cost Tim's Tams $2.00 each and the company usually sells them for $8.50.If Tim's Tams reports a charity expense of $200,this accounting choice would be considered ________.

Question

Quizplus · Accepted Answer

Donating the caps at cost ($2.00 each) would result in a charity expense of $200, which is the reported amount. However, if the company had chosen to donate the caps at their usual selling price ($8.50 each), the charity expense would have been $750. By choosing to report the lower amount, Tim's Tams is being aggressive in their accounting choice as it is reducing the reported expense and therefore increasing their profit.

Tim's Tams Donated 100 Baseball Caps to the Local Homeless