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    Question

      For the current period, inappropriate capitalization is most likely to:

    A Overstate revenues Correct Answer Incorrect Answer
    B Understate liabilities Correct Answer Incorrect Answer
    C Understate expenses Correct Answer Incorrect Answer
    D Overstate liabilities Correct Answer Incorrect Answer
    E Overstate capital Correct Answer Incorrect Answer

    Solution

    In accounting, capitalization refers to  the process of expensing the costs of attaining an asset over the life of the asset , rather than the period the expense was incurred. Management may manipulate capitalization decisions in order to understate expenses creating balance sheet assets

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