11) If a company capitalizes a plant asset that should have been expensed:
A) expenses and net income will be overstated in the year of the error.
B) expenses and net income will be understated in the year of the error.
C) expenses will be overstated and net income will be understated in the year of the error.
D) expenses will be understated and net income will be overstated in the year of the error.
12) WorldCom's fraudulent scheme of capitalizing telephone line costs instead of expensing them was discovered by:
A) external auditors.
B) astute investors.
C) U.S. Securities and Exchange Commission.
D) internal auditors.
13) Dorman Company purchased new machinery for its production process. The following costs were incurred for the new machine:
Training costs for workers for initial operation of the machine
|
$10,000
|
Wages paid to workers who operate machine during production
|
100,000
|
Ordinary repairs to the machine before the first production run
|
1,000
|
Cost of platform used for machine because it moves
|
20,000
|
Cost of trial run before the first production run
|
11,000
|
Which costs should be added to the cost of the machine?
A) $10,000
B) $30,000
C) $42,000
D) $142,000
14) Which of the following costs for a delivery vehicle should NOT be capitalized?
A) repair dented fender
B) service air conditioning system
C) repair air conditioning system
D) all of the above
15) Costs that maintain a plant asset in its present condition should be ________. Costs that restore a plant asset to working order or its prior condition should be ________.
A) capitalized; capitalized
B) capitalized; expensed
C) expensed; capitalized
D) expensed; expensed
16) A conservative policy with regard to capitalizing or expensing costs associated with plant assets avoids _________.
A) understating profits and assets
B) overstating profits and assets
C) overstating profits and understating assets
D) understating profits and overstating assets