Failure to capitalize a fixed asset at the correct amount would impact which financial statements until the company disposes of the asset?
A)The balance sheet only
B)The income statement only
C)The cash flow statement only
D)Both the income statement and the balance sheet

Question

Quizplus · Accepted Answer

Failure to capitalize a fixed asset at the correct amount would affect the balance sheet as it would be misstated and not reflect the actual value of the asset. It would also impact the income statement as the depreciation expense would be incorrect, leading to inaccurate net income. Hence, both the balance sheet and income statement would be impacted until the asset is disposed of. The cash flow statement would not be impacted as it only reflects changes in cash flows and not changes in asset values.

Failure to Capitalize a Fixed Asset at the Correct Amount