If a company capitalizes costs that it should have expensed in 2X13 (assume no income tax effect),
A)cash flows will be overstated in 2X13.
B)cash flows will be understated in 2X13.
C)net income will be understated in 2X13.
D)net income will be overstated in 2X13.
E)no income statement effect will occur.

Question

Quizplus · Accepted Answer

Capitalizing costs that should have been expensed leads to an overstatement of net income in the period of capitalization because expenses are lower than they should be.

If a Company Capitalizes Costs That It Should Have Expensed