When a company records a capital expenditure as a revenue expenditure (i.e. expenses it), what affect does this error have on the company's financial statements in that year? а. Total Assets are understated and Net Income is understated. b. Total Assets are overstated and Net Income is properly stated. с. Total Assets are overstated and Net Income is overstated. d. Total Assets are understated and Net Income is overstated.

When a company records a capital expenditure as a revenue expenditure (i.e. expenses it), what affect does this error have on the company's financial statements in that year? а. Total Assets are understated and Net Income is understated. b. Total Assets are overstated and Net Income is properly stated. с. Total Assets are overstated and Net Income is overstated. d. Total Assets are understated and Net Income is overstated.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 6MC: If a company capitalizes costs that should be expensed, how is its income statement for the current...

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Determine the effect of the following errors on a companys total revenue, total expenses, and net income. Indicate the effect by writing O for Overstated (too much), U for Understated (too little), or NA for Not Affected.
Expenses represent outflows of assets or increases in liabilities as a result of efforts to produce revenues.
If a company incorrectly classified an item of capital expenditure as revenue expenditure, what effect would this have on the company's accounts in the year of the expenditure and in subsequent years?
If the income statement error is discovered in the year of error, what action is to be done by the entity? a. Reclassify the item to its proper nominal account. b. Reclassify the item to real account. c. Adjust the effect to the retained earnings account. d. Ignore the error.
According to the IASB Framework for the preparation and presentation of financial statements, which TWO of the following are examples of expenses? A loss on the disposal of a non-current asset A decrease in equity arising from a distribution to equity participants A decrease in economic benefits during the accounting period A reduction in income for the accounting period I and II II and III I and III III and IV
If a company capitalizes costs that should be expensed, how is its income statement for the current period impacted? Assets understated Net Income understated Expenses understated Revenues understated
If the income statement error is discovered in a subsequent accounting period, what action is to be done by the entity? Group of answer choices a. Reclassify the item to its proper nominal account and restate the income statement of the prior year affected by the error. b. Restate the income statement of the prior year affected by the error. c. No reclassifying entry is necessary but restate the income statement of the prior year affected by the error. d. Reclassify the item to its proper nominal account. Recording of next year's sales as sales of the current year will Group of answer choices a. overstate net income of next year b. not affect retained earnings at the end of next year c. understate retained earnings at the end of the current year d. understate net income of the current year
If the statement of financial position error is discovered in the year of error, what action is to be done by the entity? Ignore the Reclassify the item to its proper real account. Adjust the effect to the retained earnings account. Reclassify the item to nominal account.
What is the accounting treatment for discontinued operations? A : It is reported at its gross amount as an "other revenue or gain" or "other expense or loss". B : It is reported as an "other revenue or gain" or "other expense and loss", net of tax. C : It only needs to be disclosed in the footnotes of the financial statements. D : It may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
If a company capitalizes costs that should be expensed, how is its income statement for the currentperiod impacted?A. Assets understatedB. Net Income understatedC. Expenses understatedD. Revenues understated
The Accountant for the a Company forgot to make an adjusting entry to record depreciation for the current year. The effect of this error would be: a An overstatement of net income and an understatement of assets. b An overstatement of assets offset by an understatement of owners' equity. c An overstatement of assets, net income, and owners' equity. d An overstatement of assets and of net income and an understatement of owners' equity.
A change in accounting estimate is An adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with that asset or liability. A change in the specific principles, bases, conventions, rules and practices applied b an entity in preparing and presenting financial statements. Omission from, and misstatement in an entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available and could reasonably be expected to have been obtained and taken into account in preparing those statements. All of the above.