Failure to Record Amortization Expense on a Patent During the Current

question 130

Multiple Choice

Failure to record amortization expense on a patent during the current year will result in which of the following?

• A)Net income will be overstated, but there would be no effect on total assets.
• B)Net income for the year and total assets would both be overstated.
• C)Assets will be overstated, but there would be no effect on net income for the year.
• D)Net income and assets will both be understateD.Failure to record patent amortization results in an understatement of expenses and therefore an overstatement of net income.Assets are overstated because the patent account was not reduced by the amortization that was not recorded.

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Definitions:

Administrative Costs

Expenses related to the management and general operations of a business, including salaries of senior executives, legal and accounting services.

Period Costs

Expenses that are not directly tied to the production of goods and are instead charged to the time period in which they are incurred.

Product Costs

The direct and indirect costs incurred in producing a product, including materials, labor, and overhead expenses.

Inventoriable Costs

Costs associated with the production of goods that are capitalized as inventory on the balance sheet until the goods are sold.