Tuna Co.purchased a building in 2018 for $650,000 and debited an asset called "Buildings" for the entire amount.The company never depreciated the building although it had a useful life of 15 years.At the end of 2018,this action will cause:
A)Net income to be understated.
B)Net income to be overstated.
C)Net income will not be affected.
D)Total assets will be understated.

Question

Quizplus · Accepted Answer

Since the company did not record any depreciation expense for the building, their net income will be higher than it should be. This is because depreciation expense is a non-cash expense that reflects the gradual decline in value of a long-term asset over time. By not recognizing this expense, the company is overstating their net income.

Tuna Copurchased a Building in 2018 for $650,000 and Debited an an Asset