Shouldn’t the debt/equity ratio increase, because both debt and equity increase?
post the question dude
Compared to expensing the costs of long-lived assets, would capitalizing the costs increase the firm’s debt-equity ratio? They say no, I think yes
Capitilizing costs increases assets amd equity. Therefore higher equity, lower debt/equity. Don’t get confused between capital leases and capitalizing costs.
at lease inception yes. is that all the question asks?
Why does equity go up if you are spending money on something?
I got that one wrong, too. My thinking was that since they didn’t mention financing at all, then the asset was purchased with cash, so it all happens on the asset side. I didn’t like that question.
It has nothing to do with the liability side. Expensing results in lower equity relative to capitalizing.
Costs are capitalized, therefore not flowing through income statement and not making earning lower. Therefore, earnings are higher. Therefore, equity is higher - debt/equity is lower.