Question

During 2020 and 2021, Sharp Corporation experienced several transactions involving plant assets. A number of errors were made in recording some of these transactions. For each item listed below, indicate the effect of the error (if any) in the blanks provided by using the following codes:

· O = Overstated;   

· U = Understated;   

· NE = No Effect

If no error was made, write NE in each of the four columns.

Transaction

Net Book Value of Plant Assets at Dec 31/2020

2020 Net Income

Net Book Value of Plant Assets at Dec 31/2021

2021 Net Income

The cost of installing a new computer system in 2020 was not recorded in 2020. It was charged to expense in 2021.

In 2021, clerical workers were trained to use the new computer system at a cost of $15,000, which was incorrectly capitalized. The cost is to be written off over the expected life of the new computer system.

A major overhaul of factory machinery in 2020, which extended its useful life by five years, was charged to accumulated depreciation in 2020.

Interest cost qualifying for capitalization in 2020 was charged to interest expense in 2020.

In 2020, land was bought for an employee parking lot. The $2,000 title search fee was charged to expense in 2020.

The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in 2020 was capitalized. The cost was written off over a 10-year period beginning in 2020.

Answer 1

Transaction	Net Book Value of Plant Assets at Dec 31/2020	2020 Net Income	Net Book Value of Plant Assets at Dec 31/2021	2021 Net Income
The cost of installing a new computer system in 2020 was not recorded in 2020. It was charged to expense in 2021.	U	O	U	U
In 2021 clerical workers were trained to use the new computer system at a cost of $15,000, which was incorrectly capitalized. The cost is to be written off over the expected life of the new computer system.	NE	NE	O	O
A major overhaul of factory machinery in 2020, which extended its useful life by five years, was charged to accumulated depreciation in 2020.	NE	NE	NE	NE
Interest cost qualifying for capitalization in 2020 was charged to interest expense in 2020.	U	U	U	O
In 2020 land was bought for an employee parking lot. The $2,000 title search fee was charged to expense in 2020.	U	U	U	NE
The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in 2020 was capitalized. The cost was written off over a 10-year period beginning in 2020.	NE	NE	NE	NE