Your company purchased some expensive, sophisticated equipment in January of Year 5. The cost was $2,000,000 and the equipment was expected to have a useful life of 10 years. Now, in Year 6, the company has spent an additional $1,000,000 on the same equipment. $400,000 of this total was on ordinary repairs to fix things in order to maintain expected operating condition. However, the other $600,000 was spent on extraordinary repairs, which consisted of replacing the original engine so that the useful life of the entire equipment will be extended another five years. Company management was to "capitalize" the entire $1,000,000. Write a memo around two paragraphs in length to your supervisor that explains the following: The accounting error that has been made The effect this error will have on the company's financial statements this year The problems that might result The importance of fixing the error and what needs to be done to fix the error

An accounting error has occurred with the capitalization of $400,000 incurred on ordinary repairs of equipment. This error needs to be reversed because it results in the following problems:

Incorrect income reporting
Incorrect cash flow classification
Incorrect expense reporting
Improper matching of income and expenses.

To fix the error, the Equipment account should be credited while the Equipment Repairs Expenses should be debited.

Regards,

Tony

What is an accounting error?

An accounting error is a mistake in the classification of a transaction. It may be intentional (fraudulent) or unintentional.

However, once an accounting error is spotted, it must be corrected to ensure that the accounting system is properly maintained.

Learn more about accounting errors at https://brainly.com/question/25671653