For each of the following situations, indicate the effect on assets, net income, and retained earnings at December 31, 2020 and 2021 as follows: • O if the financial statement element is overstated. • U if the financial statement element is understated. • NE if there is no effect on the financial statements. Provide a brief explanation for your choice eg NI U – expenses too high Note: please present in a table form a) Depreciation expense on machinery is too high for 2020 and the 2021 depreciation expense is correct. b) A 3-year rental agreement was signed on Jan. 1 2020 and recorded as a prepaid asset. No rent expense has been recognized. c) 2019 ending inventory was overstated by $10,000; 2020 inventory understated by $8,000; 2021 inventory was correct. d) A machine with a 15-year useful life was expensed when purchased in 2020. e) Did not accrue interest expense on a note payable at Dec 31 2020. Interest expensed when paid in 2021.
For each of the following situations, indicate the effect on assets, net income, and retained earnings at December 31, 2020 and 2021 as follows: • O if the financial statement element is overstated. • U if the financial statement element is understated. • NE if there is no effect on the financial statements. Provide a brief explanation for your choice eg NI U – expenses too high Note: please present in a table form a) Depreciation expense on machinery is too high for 2020 and the 2021 depreciation expense is correct. b) A 3-year rental agreement was signed on Jan. 1 2020 and recorded as a prepaid asset. No rent expense has been recognized. c) 2019 ending inventory was overstated by $10,000; 2020 inventory understated by $8,000; 2021 inventory was correct. d) A machine with a 15-year useful life was expensed when purchased in 2020. e) Did not accrue interest expense on a note payable at Dec 31 2020. Interest expensed when paid in 2021.
Chapter2: Introduction To Financial Statements
Section: Chapter Questions
Problem 1PB: The following information is taken from the records of Rosebloom Flowers for the year 2019. A....
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Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Question
For each of the following situations, indicate the effect on assets, net income, and
retained earnings at December 31, 2020 and 2021 as follows:
• O if the financial statement element is overstated.
• U if the financial statement element is understated.
• NE if there is no effect on the financial statements.
Provide a brief explanation for your choice eg NI U – expenses too high
Note: please present in a table form
a) Depreciation expense on machinery is too high for 2020 and the 2021
depreciation expense is correct.
b) A 3-year rental agreement was signed on Jan. 1 2020 and recorded as a
prepaid asset. No rent expense has been recognized.
c) 2019 ending inventory was overstated by $10,000; 2020 inventory
understated by $8,000; 2021 inventory was correct.
d) A machine with a 15-year useful life was expensed when purchased in 2020.
e) Did not accrue interest expense on a note payable at Dec 31 2020. Interest
expensed when paid in 2021.
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