Filemyr Corporation, a U.S. business, is a direct competitor of the Hyakawa Company, a Japanese firm. The two firms not only compete for customers, but also for investment capital. In 2014, each company spent about $3,000,000 U.S. dollars or the equivalent on research and development. US GAAP requires the entire amount to be expensed, while Japan requires its businesses to capitalize R&D and expense it over its useful life. Assuming the treatment of R&D is the only difference between the two firms, which of the following is correct?

Question

Quizplus · Accepted Answer

Filemyr will expense the R&D immediately, reducing its assets and increasing its expenses, leading to a higher debt-to-assets ratio compared to Hyakawa, which capitalizes R&D, keeping assets higher.