pute the effects on revenue, expenses, total assets, total liabilities and equity. Write NE for no effect, Over for overstated, or Under for understated. If your answer is Over or Under, you must also write the amoun

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Compute the effects on revenue, expenses, total assets, total liabilities and equity. Write NE for no effect, Over for overstated, or Under for understated. If your answer is Over or Under, you must also write the amount. 

A company bought a machine with a 4-year useful life for $30,000 and immediately
made an addition (capital expenditure) to the machine for $10,000. However, the
addition was recorded as a revenue expenditure. The company uses straight-line
depreciation method for all its machines. During the year, the company also made the
following transactions:
1. Forgot to record the warranty expense of 20,000 for the products sold.
2. Overcounted the inventory by 30,000 more at the year end.
3. Recorded prepaid fee of 10,000 from customers for a service in the next year as
revenue.
Transcribed Image Text:A company bought a machine with a 4-year useful life for $30,000 and immediately made an addition (capital expenditure) to the machine for $10,000. However, the addition was recorded as a revenue expenditure. The company uses straight-line depreciation method for all its machines. During the year, the company also made the following transactions: 1. Forgot to record the warranty expense of 20,000 for the products sold. 2. Overcounted the inventory by 30,000 more at the year end. 3. Recorded prepaid fee of 10,000 from customers for a service in the next year as revenue.
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