Costs & Expenses pg 467-473

Question 1

Advertising Costs

Answer 1

1. General Principle: expensed as incurred OR when advertising first occurs
2. Tangible assets (catalogues/billboards) recognized as prepaids and amortized to Advertising Exp until no longer owned/expected to be used
   3 Direct Response Advertising (coupons/toll-free telephone #, internet links) costs are capitalized over expected period of benefit if main purpose to produce sales from customer who respond directly to advertising
   > Capitalized costs include: Costs of logos, advertisements on internet, salary costs of employees directly working on advertising activities, assets used as prizes directly related to direct response advertising programs
   > Costs NOT capitalized are indirect costs like facility costs & depreciation

Question 2

Tax Paying Principles

Answer 2

Tax paying firm accrues property tax monthly as expense over fiscal yr bc expense should be recognized in period firm benefits from services provided by gov’t unit (BUT in perspective of taxing authority property taxes do NOT “accrue” over time)

Question 3

Compensated Absences accrued Criteria

Answer 3

If four criteria met costs accrued when employee earns them

1. Obligation attributable to services rendered as of balance sheet date
2. Rights vest (benefits no longer contingent on continued employment) OR accumulate (carry over to future periods)
3. Pmt of obligation probable
4. Amt obligation estimable

Question 4

Sick pay

Answer 4

Need not be accrued unless vested