Gilbert Company made an ordinary repair to a delivery truck during 2019 at a cost of $500 and capitalized the repair cost.What is the effect on the 2019 financial statements as a result of the incorrect capitalization?

Question

Quizplus · Accepted Answer

Capitalizing the repair cost means that it was recorded as an asset, which is an overstatement of the asset value. This leads to an overstatement of total assets on the balance sheet and an overstatement of net income on the income statement, as the repair cost is not considered an expense in the current period, but rather an increase in the value of the delivery truck. Therefore, choice C is the correct answer.

Gilbert Company Made an Ordinary Repair to a Delivery Truck