Question

During the first month of its current fiscal year, Green Co. incurred repair costs of $21,000 on a machine that had 5 years of remaining depreciable life. The repair cost was inappropriately capitalized. Green Co. reported operating income of $162,000 for the current year.

Required:

a. Assuming that Green Co. took a full year's straight-line depreciation expense in the current year, calculate the operating income that should have been reported for the current year.

b. Assume that Green Co.'s total assets at the end of the prior year and at the end of the current year were $943,000 and $1,016,000, respectively. Calculate ROI (based on operating income) for the current year using the originally reported data and then using corrected data. (Round your answers to 1 decimal place.)

Answer 1

Requirement a)
		The Operating Income that should have been reported for the current year
		Operating Income originally reported for the current year	162000
		Add : Repair cost incorrectly capitalized	21000
		Less : Depreciation charged on repair cost which has been incorrectly capitalized	-4200
		The Operating Income that should have been reported for the current year	178800
Requirement b)
	Part 1	Operating Income originally reported for the current year	162000
		Average total assets of Green Co.	979500
		(943000+1016000)/2
		ROI based on originally reported operating Income	16.54	%
	Part 2	Revised Operating Income reported for the current year	178800
		Average total assets of Green Co.	979500
		(943000+1016000)/2
		ROI based on originally reported operating Income	18.25