Newell Corp. has acquired land and paid $500 as a brokerage commission to acquire the land. However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of this error?

Question

Quizplus · Accepted Answer

The $500 brokerage commission paid to acquire the land should have been capitalized as part of the land's cost, not expensed. Recording it as a revenue expenditure means it was deducted from income, thus understating net income by $500.