Question Details

Interest cost qualifying for capitalization in 2010 was charged to interest expense in 2010.



Ex. 1—Plant asset accounting.
During 2010 and 2011, Sawyer 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 = Overstate;  U = Understate;  NE = No Effect

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

		2010			2011	
	Book		Book
	Value of		Value of
	Plant	2010	Plant	2011
	Assets at	Net	Assets at	Net
	Transaction	12/31/10	Income	12/31/11	Income

1.	The cost of installing a new computer system in 2010 was not recorded in 2010. It was charged to expense in 2011.

2.	In 2011 clerical workers were trained to use the new computer system at a cost of $15,000, which was erroneously capital-ized. The cost is to be written off over the expected life of the new computer system.

3.	A major overhaul of factory machinery in 2010, which extended its useful life by 5 years, was charged to accumulated depreciation in 2010.

4.	Interest cost qualifying for capitalization in 2010 was charged to interest expense in 2010.

5.	In 2010 land was bought for an employee parking lot. The $2,000 title search fee was charged to expense in 2010.

6.	The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in 2010 was capitalized. The cost was written off over a 10-year period beginning in 2010.




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