[求助]Level1 exam2 61题 style, filled, following

longwayking

题目如下：

which of the following statements about capitalizing and expensing the cost of a long-lived asset is least accurate?

A. A company that capitalizes  the cost will  have lower debt-to-asset and debt-to-equity ratios than a company that expenses the cost

 

B. A company that expenses the cost will show  the same total cash flows as the capitalizing firm, but will  show higher profitability early in the asset's life

 

C. In the early years of the asset's life, a company that expenses the cost  will have lower profitability ratio,  such as return on assets and return on equity, than a company that capitalizes the cost

  

答案是B

 

A 为什么是对的？

fficeffice" />书上写的，capitalize lease 的D/A和D/E都较高啊，

[此贴子已经被作者于2010-4-25 16:57:14编辑过]

forwhat

imagine two identical companies in the same industry with same IS and BS, but company A expenses a project and company B capitalize the same project.

company A's expense won't affect its BS items but would only be recorded on IS

however, capitalization will let the company B's asset and equity incerease by the capitalized amount and depreciate it over time

 

comparing to A, B will have a higher asset but with the same debt, therefore D/A and D/E will be lower for capitalized company

the profitability of B will seems to be higher in the early years but decrease through time and finally lower in the last few years comparing to A

therefore, answer A & C are correct, answer B is correct on the first half when tax is not cosidered, but incorrect in the second half since expense method will show lower profitability in early stage