Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?Multiple choice question.Capitalizing costs that should be expensed.Recording the costs of merchandise purchased on account.Recording costs as Construction in Progress even though the asset is completed.Expensing costs that should be capitalized.
Question
Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?Multiple choice question.Capitalizing costs that should be expensed.Recording the costs of merchandise purchased on account.Recording costs as Construction in Progress even though the asset is completed.Expensing costs that should be capitalized.
Solution
The answer is "Capitalizing costs that should be expensed."
Here's why:
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Capitalizing costs that should be expensed: This would cause the balance sheet to appear stronger because it would increase the amount of assets on the balance sheet. It would also cause the income statement to appear more profitable because it would decrease the amount of expenses recorded in the current period.
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Recording the costs of merchandise purchased on account: This would not necessarily make the balance sheet appear stronger or the income statement appear more profitable. It would simply change the way the costs are recorded.
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Recording costs as Construction in Progress even though the asset is completed: This would not necessarily make the balance sheet appear stronger or the income statement appear more profitable. It would simply delay the recognition of the asset.
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Expensing costs that should be capitalized: This would actually make the balance sheet appear weaker and the income statement appear less profitable because it would increase the amount of expenses recorded in the current period and decrease the amount of assets on the balance sheet.
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