Piper Productions inadvertently recorded an expense as a capital expenditure.Which of the following will occur as a result of this mistake?
A)Assets will be understated.
B)Net income will be understated.
C)Net income will be overstated.
D)Both A and C will occur.

Question

Quizplus · Accepted Answer

If an expense is recorded as a capital expenditure, it will be added to the company's assets rather than being recognized as an expense in the current period. As a result, the company's net income will be overstated, because expenses are not being recognized properly. Therefore, Option C is correct. Option A is incorrect because assets will be overstated, not understated. Option B is incorrect because net income will be understated as a result of the error, rather than overstated. Option D is incorrect because Option A is incorrect.

Piper Productions Inadvertently Recorded an Expense as a Capital Expenditure