What Is the Effect on the 2010 Financial Statements When

question 111

Multiple Choice

What is the effect on the 2010 financial statements when a capital expenditure during 2010 was incorrectly recorded as a revenue expenditure?

• A)The financial statements aren't affected.
• B)Assets and net income are both overstated.
• C)Assets are overstated and net income was understated.
• D)Assets and stockholders' equity are both understated.

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Definitions:

CGT

Capital Gains Tax (CGT) is a tax on the profit earned from the sale of non-inventory assets that were purchased at a cost amount that was lower than the amount realized on the sale.

Flotation Cost

The total costs a company faces in issuing new securities, including underwriting, legal, and registration fees.

Cost of New Stock

The costs associated with issuing new shares of stock, including the underwriting and administrative costs.

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends.