Which of the following is true?Multiple choice question.Capitalized costs decrease stockholders' equity.Expenses increase assets.Expenses increase stockholders' equity.Capitalized costs increase long-lived assets.
Question
Which of the following is true?Multiple choice question.Capitalized costs decrease stockholders' equity.Expenses increase assets.Expenses increase stockholders' equity.Capitalized costs increase long-lived assets.
Solution
The correct answer is "Capitalized costs increase long-lived assets."
Here's why:
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Capitalized costs decrease stockholders' equity: This is not true. Capitalized costs are added to the asset side of the balance sheet, not subtracted from the equity side.
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Expenses increase assets: This is not true. Expenses decrease assets because they represent the consumption of resources.
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Expenses increase stockholders' equity: This is not true. Expenses decrease stockholders' equity because they represent the consumption of resources that could have been used to generate profits.
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Capitalized costs increase long-lived assets: This is true. When a cost is capitalized, it is added to the balance sheet as a long-lived asset rather than being expensed immediately. This increases the total value of long-lived assets.
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