An asset that costs $4,000 on January 1,20x1,is being depreciated on the basis of a 10% straight-line rate.On January 1,20x2,an ordinary repair of $600 was debited to the asset account and also was depreciated in the same way.As a result,20x2 pre-tax income was:

Question

Quizplus · Accepted Answer

The repair cost should not have been capitalized and depreciated. By doing so, the depreciation expense was increased by $60 ($600 * 10%), overstating the asset's value and thus overstating the pre-tax income by $540 ($600 - $60).

An Asset That Costs $4,000 on January 1,20x1,is Being Depreciated