At the end of fiscal year 2023, PepsiCo's accounting department discovered that they had incorrectly recorded a $2.3 million equipment purchase as an operating expense rather than capitalizing it as a fixed asset. The equipment, purchased on January 1, 2023, has an estimated useful life of 5 years with no salvage value. The company uses straight-line depreciation for all its equipment and follows GAAP standards. Upon discovery of this error on December 31, 2023, the accounting team needs to make the necessary adjusting entries to correct the books. What is the impact of this error on PepsiCo's financial statements, and what correcting journal entries should be made to fix this mistake (consider both the asset recording and the year's depreciation)? What would be the net effect on PepsiCo's 2023 net income after making these corrections?
At the end of fiscal year 2023, PepsiCo's accounting department discovered that they had incorrectly recorded a $2.3 million equipment purchase as an operating expense rather than capitalizing it as a fixed asset. The equipment, purchased on January 1, 2023, has an estimated useful life of 5 years with no salvage value. The company uses straight-line depreciation for all its equipment and follows GAAP standards. Upon discovery of this error on December 31, 2023, the accounting team needs to make the necessary adjusting entries to correct the books. What is the impact of this error on PepsiCo's financial statements, and what correcting journal entries should be made to fix this mistake (consider both the asset recording and the year's depreciation)? What would be the net effect on PepsiCo's 2023 net income after making these corrections?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:At the end of fiscal year 2023, PepsiCo's
accounting department discovered that they
had incorrectly recorded a $2.3 million
equipment purchase as an operating expense
rather than capitalizing it as a fixed asset. The
equipment, purchased on January 1, 2023, has
an estimated useful life of 5 years with no
salvage value. The company uses straight-line
depreciation for all its equipment and follows
GAAP standards. Upon discovery of this error
on December 31, 2023, the accounting team
needs to make the necessary adjusting entries
to correct the books. What is the impact of this
error on PepsiCo's financial statements, and
what correcting journal entries should be made
to fix this mistake (consider both the asset
recording and the year's depreciation)? What
would be the net effect on PepsiCo's 2023 net
income after making these corrections?
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