When a company records a capital expenditure as a revenue expenditure (i.e. expenses it), what affect does this error have on the company’s financial statements in that year? Total Assets are overstated and Net Income is overstated. Total Assets are understated and Net Income is overstated. Total Assets are understated and Net Income is understated. Total Assets are overstated and Net Income is properly stated. Plum Corporation purchases new office equipment for $5,000,000 on January 1, 2021. Plum estimates that the equipment has a $200,000 residual value and a useful life of 6 years. Plum uses the straight-line method to record depreciation. Assume that on January 1, 2024, after three years, Plum estimates that the equipment's remaining useful life is 8 years and residual value is $120,000. A depreciation schedule would show depreciation expense for 2024. $800,000 $610,000 $496,000 $443,636 $310,000 On November 5, 2021, BIT Corporation sells a piece of its equipment. BIT Corporation had initially purchased the equipment for $700,000. The company had recorded $460,000 in depreciation for this piece of equipment as of the date of sale. If BIT Corporation receive $300,000 cash when they sell the equipment, they will report a on their November 2021 Income Statement; if they instead receive $200,000 cash when they sell the equipment, they will report a ______. $60,000 gain; $40,000 loss. $60,000 loss; $40,000 gain. $160,000 gain; $260,000 loss. $300,000 gain; $200,000 gain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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When a company records a capital expenditure as a revenue expenditure (i.e. expenses it), what affect does this error have on the company’s financial statements in that year?
1. Total Assets are overstated and Net Income is overstated.
2. Total Assets are understated and Net Income is overstated.
3. Total Assets are understated and Net Income is understated.
4. Total Assets are overstated and Net Income is properly stated.

Plum Corporation purchases new office equipment for $5,000,000 on January 1, 2021. Plum estimates that the equipment has a $200,000 residual value and a useful life of 6 years. Plum uses the straight-line method to record depreciation. Assume that on January 1, 2024, after three years, Plum estimates that the equipment's remaining useful life is 8 years and residual value is $120,000. A depreciation schedule would show ________ depreciation expense for 2024.
1. $800,000
2. $610,000
3. $496,000
4. $443,636
5. $310,000

On November 5, 2021, BIT Corporation sells a piece of its equipment. BIT Corporation had initially purchased the equipment for $700,000. The company had recorded $460,000 in depreciation for this piece of equipment as of the date of sale.

If BIT Corporation receive $300,000 cash when they sell the equipment, they will report a __________ on their November 2021 Income Statement; if they instead receive $200,000 cash when they sell the equipment, they will report a ____________.

$60,000 gain; $40,000 loss.
$60,000 loss; $40,000 gain.
$160,000 gain; $260,000 loss.
$300,000 gain; $200,000 gain.

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