dece2011

slorte Wrote:
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> I saw another post that confused "capitalizing" w/
> "capital lease"
>
> they are not the same thing.
>
> there are TWO different animals here -
>
> 1. Capitalizing vs. Expensing - "capitalizing"
> means you spread out the expense over a period of
> time (smoothing out), expensing means you
> recognize the entire expense in the current
> period. Check out R&D and software development
> examples for these topics.
>
> 2. Operating Leases vs. Finance (capital) leases -
> are two different treatments for leases that
> *only* apply to leases and nothing else.
>
> Chung's post is accurate and good at explaining
> lease treatments, but its not what the question is
> asking.
>
>
>
>
> the answer is B because a company that expenses
> costs will show LOWER profitability in the early
> part of the asset's life due to HIGHER expense
> being reported.


+1. I agree. This question is about capitalizing versus expensing. That makes B the correct answer.