1. Red Company immediately expenses its development costs while Black Company capitalizes its development costs. All else equal, Red Company will: A) show smoother reported earnings than Black Company B) report higher operating cash flow than Black Company C) report higher asset turnover than Black Company 2. Tonga Corporati ion incurred the following expenditures to purchase a new machine: $100,000 purchase price, $12,000 for delivery of the machine, $5,000 for installation and testing of the machine, $4,000 to train staff to maintain the machine. In addition, the firm paid $2,000 to reinforce the factory floor to upport the machine's weight. They also paid $20,000 to repair the factory roof, extending the life of the factory by 4 years and $10,000 to create office space for the supervisor of the factory area. The capitalized value of the machine on the firm's books would be closest to: A) $117,000 B) $119,000 C) $121,000 D) $137,000 Under GAAP, which of the following costs are normally expensed in the year incurred, regardless of the expected economic benefit? A) Goodwill created as a result of a business combination B) Software development costs before technological feasibility is achieved C) A patent purchased from an independent third party 3