1. How should research and development costs be accounted for under GAAP? A. Capitalized B. Expensed as incurred C. Amortized over a specified period D. Depreciated over the useful life Answer: B. Expensed as incurred Rationale: Research and development costs should be expensed as they are incurred, as it is difficult to predict the future economic benefits of such activities. 3. Which of the following is not a characteristic of a liability? A. Obligation to transfer assets B. Past transaction or event C. Future cash outflow D. Increases equity Answer: D. Increases equity Rationale: Liabilities are obligations to transfer assets or provide services in the future that arise from past transactions or events and result in a future cash outflow. 4. How should contingent liabilities be accounted for in financial statements? A. Disclosed in the footnotes B. Recognized as liabilities C. Ignored until they become due D. Amortized over the useful life Answer: A. Disclosed in the footnotes Rationale: Contingent liabilities are potential obligations that may or may not materialize in the future, and therefore are disclosed in the footnotes to the financial statements.