Multiple Choice
Which of the following is typically included in manufacturing overhead?
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9. Current Liabilities
Types of Liabilities
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Which of the following best describes the costs incurred to start a corporation?
A
Organization costs, which are classified as intangible assets
B
Current liabilities, since they must be paid within one year
C
Organization costs, which are classified as expenses
D
Long-term liabilities, since they are paid over several years
Verified step by step guidance1
Understand the concept of organization costs: These are costs incurred during the formation of a corporation, such as legal fees, registration fees, and promotional expenses.
Recognize how organization costs are classified in financial accounting: They are typically treated as expenses rather than assets or liabilities.
Clarify why organization costs are not classified as intangible assets: Intangible assets are non-physical assets that provide future economic benefits, such as patents or trademarks. Organization costs do not meet this criterion.
Explain why organization costs are not classified as current or long-term liabilities: Liabilities represent obligations to pay money or provide services in the future, which is not the case for organization costs.
Conclude that organization costs are classified as expenses because they are incurred during the startup phase and do not provide future economic benefits beyond the initial setup of the corporation.
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