Pierce Corporation, a U.S. business, is a direct competitor of Zeiss Company, a German firm. The two firms not only compete for customers, but also for investment capital. In Year 1, each company spent about $35,000 U.S. dollars or the equivalent on research and development. U.S. GAAP requires the entire amount to be expensed, while Germany requires its businesses to record R&D expenditures as an asset and then to expense it over its useful life. Assuming the treatment of R&D is the only difference between the two firms, which of the following is correct?
A. Pierce will have a higher debt-to-assets ratio than Zeiss in Year 1.
B. This difference in accounting principles does not affect the total amount of assets reported by the two companies.
C. Zeiss will have a lower net income for Year 1.
D. Pierce will have higher total assets than Zeiss in Year 1.
Answer: A
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