Question

Baker Corp. made an ordinary repair to a delivery truck with a remaining useful life of three years at a cost of $200. Baker's accountant debited the asset account, Equipment.

Was this treatment an error, and if so, what will be the effect on Baker's financial statements?

Select one:

a. Yes, the error overstated assets but not net income.

b. Yes, in the years following the current year, net income will be overstated.

c. Yes, the error overstated assets and net income.

d. No, the repair was accounted for correctly.

e. Yes, the error understated net income.

Real, Inc. acquired an office building, land, and equipment in a single basket purchase. The fair values were $1,800,000, $900,000, and $300,000 for the building, land, and equipment, respectively. The company recorded the building for $1,440,000.

What was the total purchase cost for all three assets?

Select one:

a. $3,000,000

b. $2,700,000

c. $1,500,000

d. $2,800,000

e. $2,400,000

Answer 1

Answer 1

CORRECT ANSWER: - C. Yes, The Error Overstated assets and net income.

In given case assets A\c is debited but it is required to debit repair expenses A\c. So effect due to wrong treatment is assets is increase . expenses not debited so result into net profit also increased .

Answer 2.

CORRECT ANSWER  A. $3000000

Cost of assets is not given in question so. It is deemed that total assets are purchased at fair value .

Total cost of assets = ($1800000 +$900000 + $300000) = $3000000