The accounting treatment or statement presentation of various items is discussed below. The items pertain to unrelated businesses.

Instructions

Indicate in each case whether the item has been handled in accordance with generally accepted accounting principles. If so, indicate the key basic concept that has been followed. If not, indicate which concept has been violated and tell how the item should have been recorded or presented.

1. The assets listed in the accounting records of Adams' Pharmacy include a money market account of Robert Adams, owner of the business. Adams has established the savings account so that if he needs to invest more cash in the pharmacy, it will be readily available.

2. On December 31, 2016, an account receivable of $1,800 due from Tollie Pettis, who is in the county jail on charges of passing bad checks, is not included in the balance sheet. The owner of the business has written off the amount because he feels certain that the debt will not be paid, even though Pettis insists that she will pay after she gets out of jail and finds a job.

3. The equipment of Sadler Plastics Company has a book value (cost less accumulated depreciation) of $180,000. However, the equipment could not be sold for more than $40,000 today. The company's owner thinks that the machinery should nevertheless be reported on the balance sheet at $180,000 and depreciated over its useful life, because the equipment is being used regularly in the business and it is expected to be used profitably for the next five years- the remaining useful life that is being used for depreciation purposes.

4. Ohio Company manufactured machinery for its own use at a cost of $600,000. The lowest bid from an outsider was $650,000. Nevertheless, the company recorded the machinery at $600,000.

5. On December 31, 2016, the balance sheet of Transit Depot reported prepaid insurance at $4,000. The prepaid insurance reflects the refund value of a three-year fire insurance policy that originally cost $6,000 on January 1, 2015.

6. At the beginning of 2016, Jamison Company bought a building for $3,000,000. At the end of 2016, the building's value was appraised at $3,300,000. Since there was an increase in value, the company did not record depreciation on the building and also did not increase the $3,000,000 recorded in the building account at time of purchase.

Analyze: If Jamison Company uses the accounting treatment described in Item 6, is net income overstated or understated for 2016?