Question

For each of the following errors, indicate its effect on the financial statement elements and ratios shown in the table below. Indicate whether the financial statement element or ratio would be overstated (higher than it would have been had the error not occurred), understated (lower than it would have been had the error not occurred), or not affected by the error in the year the error occurred (except for item (d)).
a. New equipment is purchased but is expensed immediately rather than being capitalized and depreciated.
b. Advertising costs are capitalized instead of being expensed as incurred.
c. A building's useful life is estimated to be 10 years instead of 25 years. What is the impact in the first year of the building's life?
d. A building's useful life is estimated to be 10 years instead of 25 years. What is the impact in the 15th year of the building's life?
e. A piece of land is depreciated over 25 years, the life of the building that is on theland.


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  • CreatedFebruary 26, 2015
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