During 2014 and 2015, Sawyer Corporation experienced several transactions involv

Question

During 2014 and 2015, Sawyer Corporation experienced several transactions involving plant assets. A number of errors were made in recording some of these transactions. For each item listed below, indicate the effect of the error (if any) in the blanks provided by using the appropriate terms; Understate, No Effect, or Overstate.

If no error was made, choose No Effect in each of the four columns.

2014 2015 Net Book Value of Net Book Value of Plant Assets at 12/31/14 2015 Net Income Transaction Transaction Income 1. The cost of installing a new computer system in 2014 was not recorded in 2014. It was charged to expense 2. In 2015 clerical workers were trained to use the new computer system at a cost of $15,000, which was 3. A major overhaul of factory machinery in 2014, which extended its useful life by 5 years, was charged to 4. Interest cost qualifying for capitalization in 2014 was charged to interest expense in 2014. 5. In 2014 land was bought for an employee parking lot. The $2,000 title search fee was charged to expense 6. The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in 2014 in 2015. erroneously capital-ized. The cost is to be written off over the expected life of the new computer system accumulated depreciation in 2014 in 2014. was capitalized. The cost was written off over a 10-year period beginning in 2014.

Explanation / Answer

2014 2015 Transaction Net Book Value of Plant Asset at Transaction 2014 Net Income Net Book Value of Plant Asset at 12/31/14 2015 Net Income 1 Understate Overstate Understate Understate 2 No Effect No Effect Overstated Overstated 3 Understate Understate Understate Overstated 4 Understate Understate Understate Overstated 5 Understate Understate Understate No Effect 6 Overstated Overstate Overstated Understate

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