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 2012,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 expenses, leading to a higher debt-to-assets ratio compared to Hyakawa, which capitalizes R&D, keeping assets higher.