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Tanker Oil Co., a development stage enterprise, incurred the following costs during its first year of operations:
Tanker had no revenue during its first year of operation. What amount may Tanker capitalize as organizational costs?
Suggested Answer: B
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Choice 'B' is correct. The equity method of accounting is applied retroactively when the investor has acquired 20% ownership. Prior to acquiring the ability to influence the investee, the cost method is proper. The retroactive restatement approach does not mean that this change is the correction of an error (which is now treated retroactively), a change in accounting principle (which is now treated retrospectively), or a change in accounting entity (which is now treated retrospectively). It just means that retroactive restatement is the proper treatment.
40 comments · newest first
LU
Lura
11 months ago
$115,000 seems way too high for a startup!
SH
Sheron
11 months ago
I thought organizational costs were capped at $50,000.
KI
Kimberlie
12 months ago
Wait, can they really capitalize anything if there’s no revenue?
CA
Callie
12 months ago
Totally agree, it’s the only option that makes sense!
JU
Julianna
12 months ago
I think they can capitalize $55,000.
VE
Verdell
1 year ago
I believe the answer is $0 because they had no revenue, but I need to double-check the rules on capitalization for development stage companies.
JE
Jeannetta
1 year ago
I’m a bit confused about the total amount. I thought organizational costs could only include certain fees, but I can't recall the exact limits.
LO
Lonny
1 year ago
I think we practiced a similar question where we had to identify which costs could be capitalized. I feel like $95,000 might be the right answer.
KI
Kindra
1 year ago
I remember something about organizational costs being limited to specific expenses, but I'm not sure if all of these qualify.
DO
Donette
1 year ago
This looks like a straightforward security question. I think the key is to find the solution that provides the most protection with the least operational overhead.
TE
Terrilyn
1 year ago
I'm a bit confused on how to approach this. Can someone walk me through the calculation to determine the correct market value of the additional securities?
LI
Lindsey
1 year ago
I'm not completely sure, but I remember something about how customer needs change all the time. That might complicate things too.
GA
Gail
1 year ago
I thought we did a practice question on this; I think it was mentioned that both standards are indeed involved.
LA
Lawrence
1 year ago
Tanker Oil Co. needs to hold a bake sale or something to cover those costs. Maybe they can sell some cookies and use that to capitalize their organizational costs. Just a thought!
DA
Dana
1 year ago
You know, if I were Tanker Oil Co., I'd be looking for a new accountant. This is a mess! I'll go with B) $95,000 just to spice things up.
CO
Coletta
1 year ago
Yeah, it's definitely a tough situation for Tanker Oil Co.
BR
Brinda
1 year ago
I agree, that seems like the most reasonable option.
FE
Felix
1 year ago
I think Tanker should capitalize $95,000 as organizational costs.
DE
Devorah
1 year ago
Hold up, I'm a bit confused. Why would they capitalize anything when they had no revenue? I'm leaning towards D) $0.
EL
Elizabeth
1 year ago
So, the answer would be D) $0.
NI
Niesha
1 year ago
Yeah, I agree. It doesn't make sense to capitalize costs without any revenue.
MA
Marsha
1 year ago
So, the answer would be D) $0.
AU
Audry
1 year ago
I think they can't capitalize anything if they had no revenue.
JU
Jules
1 year ago
Yeah, I agree. It wouldn't make sense to capitalize anything without revenue.
CH
Chantell
1 year ago
I think they can't capitalize any costs if they had no revenue.
LU
Luisa
1 year ago
Wow, that's a lot of expenses! I'm not sure I'd capitalize any of it. Let's go with D) $0.
TO
Toshia
1 year ago
So, D) $0 would be the correct amount to capitalize in this case.
KA
Kathryn
1 year ago
Organizational costs are usually capitalized when there is revenue to offset them.
CA
Candra
1 year ago
I think we should go with D) $0 as well since Tanker had no revenue during its first year of operation.
TO
Tomas
1 year ago
I agree, it seems like a lot of expenses for a development stage enterprise.
PE
Pearlene
1 year ago
Exactly, it wouldn't make sense to capitalize any costs without revenue to offset them.
WI
William
1 year ago
So, D) $0 seems like the correct choice in this scenario.
CH
Charisse
1 year ago
Organizational costs are typically capitalized when there is revenue to offset them.
RE
Reena
1 year ago
I agree, since Tanker had no revenue, it makes sense to capitalize $0.
JE
Jeanice
1 year ago
This is a tricky one. Hmm, I think I'll go with C) $55,000. That seems like the most reasonable amount to capitalize as organizational costs.
SH
Shalon
1 year ago
I think D) $0 might be the correct answer since Tanker had no revenue during its first year of operation.
PA
Pansy
1 year ago
I agree with you, C) $55,000 seems like the right amount to capitalize as organizational costs.
MY
My
1 year ago
But Tanker had no revenue, so they can capitalize all the costs, which is $115,000.
BU
Buffy
2 years ago
I disagree, I believe the answer is B) $95,000.
MY
My
2 years ago
I think the answer is A) $115,000.