Youve just been called for an interview for an executive position at HLT Co. A member of the panel asked you the following question:

You are the Chief Executive Officer for HLT Co. Your chief financial office (CFO) and Controller are not in agreement regarding an expenditure of $750,000. The CFO wants to capitalize it while the controller is arguing that it should be expensed. Assume that chief officers are paid a bonus based on reported income from operations and also offered stock options whereas the controller is paid a fixed salary.

1)Explain to your CFO & controller the grounds upon which an item is capitalized or not?

2)What would be the impact on financial statements of capitalizing versus expensing the above expenditure?

3)Why might the CFO favor capitalization over expensing?

4)Which one you might favor?