A Major Addition to Equipment Should Have Been Capitalized in the Year

question 93

Multiple Choice

A major addition to equipment should have been capitalized in the year 2018 but was incorrectly expensed. Which of the following is (are) true?

• A) Income in 2018 is understated.
• B) Income in future years is overstated.
• C) Assets in 2018 are understated.
• D) All of these answer choices are true.

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Definitions:

Profits

The financial gain made in a transaction or operation, calculated as the difference between revenue and expenses.

Firm

A business organization, such as a corporation or partnership, that sells goods or services in exchange for revenue.

Profit-Maximizing Firm's Output

The output level at which a firm achieves the maximum possible profit, typically where marginal cost equals marginal revenue.

Perfectly Competitive Firm

A theoretical concept where a company operates in a market where there are many buyers and sellers, all selling homogeneous products, with no barriers to entry or exit.