In 20B, Gamma Company made an ordinary repair to a delivery truck at a cost of $300. Gamma's accountant debited the asset account, Delivery Vehicles. Was this treatment an error, and if so, what will be the effect on the financial statements of Gamma?
A) In the years following 20B, net income will be too high.
B) The error increased assets and profit in 20B.
C) The error decreased profit in 20B.
D) The repair was accounted for correctly.

Question

Quizplus · Accepted Answer

The repair should have been expensed, not capitalized. By debiting the asset account, assets and profit were overstated in 20B.

In 20B, Gamma Company Made an Ordinary Repair to a Delivery