1. Compared with companies that expense costs, firms that capitalize costs can be expected to report:
A. higher asset levels and lower equity levels.
B. higher asset levels and higher equity levels.
C. lower asset levels and higher equity levels.
D. lower asset levels and lower equity levels.
5. If a company changes the useful life of its assets from 10 years to 12 years, this will be recorded as:
A. a non-recurring gain.
B. an extraordinary item.
C. a change in accounting principle.
D. None of the above
6. Which of the following is true with respect to extraordinary items? I. Extraordinary items are recorded net of tax in income statement.II. Extraordinary items, by definition, are probable and unusual in nature.III. By definition, gains and losses from strikes are always extraordinary.IV. By definition, gains and losses from sale of plant, property and equipment are never extraordinary.
A. I and IV
B. I, III and IV
C. II and IV
D. I, II and III
9. Which of the following is not a reason for economic income and accounting income to differ?
A. Transaction basis
B. The monetary assumption
D. Earnings management