Reference no: EM132928097

Problem 1: Which of the following are NOT true about the capitalization and expensing of the costs?

a. Capitalization postpone expense recognition

b. Expensing leads to lower cash flow from operations compared with capitalization

c. Capitalization leads to less volatile earnings compared with expensing

d. Expensing leads to a lower debt to equity ratio compared with capitalization

e. None of the above

Problem 2: ChinaOil recorded an expense and corresponding liability to recognize potential losses relating to an oil spill in 2020 of $10 million. Its net income for the year was $200 million. It was not able to take a deduction for tax purposes until later years when it actually paid cash out in relation to this event. In 2020, with respect to this, Exoil would have:

a. recognized a deferred tax liability.

b. recognized a tax loss carryforward.

c. recognized a deferred tax asset.

d. recognized a deferred equity loss.

e. none of the above