Asked by Alexis Klein on Jul 07, 2024
Verified
The cost of a plant asset did NOT include installation costs that were expensed. This error would cause:
A) the period's net income to be overstated.
B) the period's net income to be understated.
C) the period's end assets to be understated.
D) Both B and C are correct.
Installation Costs
Expenditures associated with setting up equipment or systems, which may be capitalized or expensed depending on accounting policies.
Net Income
The profit a company has after all expenses, taxes, and deductions are subtracted from total revenue.
- Recognize the impact of improper asset categorization or expense distribution on the financial statements.
Verified Answer
MM
Megan MattsonJul 13, 2024
Final Answer :
D
Explanation :
Installation costs for a plant asset should be capitalized as part of the asset's cost rather than expensed. Failing to capitalize these costs results in the period's net income being understated because expenses are higher than they should be. Additionally, the asset's value on the balance sheet is understated because the installation costs were not included in the asset's recorded cost.
Learning Objectives
- Recognize the impact of improper asset categorization or expense distribution on the financial statements.
Related questions
The Cost of a Plant Asset Was Increased for the ...
A Company Incorrectly Records Revenue Expenditures as Capital Expenditures on ...
Paying an Account Payable Increases Liabilities and Decreases Assets
Assets That Are Used Up During the Process of Earning ...
Asset and Liability Balances Are Transferred from the Adjusted Trial ...