During 2016 and 2017, ABC Corporation experienced several transactions involving plant assets. A number of errors were made in recording some of these transactions. For each item listed on the attached file, indicate the effect of the error (if any) using the following codes: O = Overstate; U = Understate; NE = No Effect * *If no error was made, write NE in each of the four columns. Transaction Net Book Value of Plant Assets at 12/31/16 2016 Net Income Net Book Value of Plant Assets at 12/31/17 2017 Net Income The cost of installing a new computer system in 2016 was not recorded in 2016. It was charged to expense in 2017. In 2017 clerical workers were trained to use the new computer system at a cost of P15,000, which was erroneously capital-ized. The cost is to be written off over the expected life of the new computer system. A major overhaul of factory machinery in 2016, which extended its useful life by 5 years, was charged to accumulated depreciation in 2016. Interest cost qualifying for capitalization in 2016 was charged to interest expense in 2016. In 2016 land was bought for an employee parking lot. The P2,000 title search fee was charged to expense in 2016. The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in 2016 was capitalized. The cost was written off over a 10-year period beginning in 2016.
Plant asset accounting: During 2016 and 2017, ABC Corporation experienced several transactions involving plant assets. A number of errors were made in recording some of these transactions. For each item listed on the attached file, indicate the effect of the error (if any) using the following codes: O = Overstate; U = Understate; NE = No Effect *
*If no error was made, write NE in each of the four columns.
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Transaction |
Net Book Value of Plant Assets at 12/31/16 |
2016 Net Income |
Net Book Value of Plant Assets at 12/31/17 |
2017 Net Income |
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The cost of installing a new computer system in 2016 was not recorded in 2016. It was charged to expense in 2017. |
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In 2017 clerical workers were trained to use the new computer system at a cost of P15,000, which was erroneously capital-ized. The cost is to be written off over the expected life of the new computer system. |
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A major overhaul of factory machinery in 2016, which extended its useful life by 5 years, was charged to accumulated |
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Interest cost qualifying for capitalization in 2016 was charged to interest expense in 2016. |
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In 2016 land was bought for an employee parking lot. The P2,000 title search fee was charged to expense in 2016. |
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The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in 2016 was capitalized. The cost was written off over a 10-year period beginning in 2016. |
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Interest cost qualifying for capitalization in 2016 was charged to interest expense in 2016.
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