Question

Ms. Garden, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following statements correctly describes this situation?

a) Assets will be overstated
b) stockholders equity will be understated
c) expenses will be overstated
d) liabilities will be overstated

Answer 1

Answer:

a) Assets will be overstated

Explanation:

Annual repairs costs are operating expenses that should be debited to the repair and maintenance account. The amount should increase the repair and maintenance account and, consequently, expenses for that period.

If the repair expenses are debited to the asset account, assets increase in value. Since the repair costs are wrongfully posted,  the assets will be overstated. On the other hand, expenses will be understated