Question

A new accountant working for Ayayai Corp. records $750 Depreciation Expense on store equipment as follows:

Dr. Depreciation Expense............................... 773
Cr. Accumulated Depreciation- Equipment .............................................. 773
The effect of this entry is to:
A) understate the book value of the depreciable assets as of December 31.
B) adjust the accounts to their proper amounts on December 31.
C) understate total assets on the balance sheet as of December 31.
D) overstate the book value of the depreciable assets on December 31.

Answer 1

The incorrect entry of $773 instead of $750 for depreciation expense results in an overstatement of the book value of depreciable assets on December 31.

Step-by-step explanation:

The effect of recording a $750 Depreciation Expense on store equipment is to overstate the book value of the depreciable assets on December 31. The entry should have been recorded as $750, but it was mistakenly recorded as $773. This error leads to less depreciation expense being recognized than should have been, and consequently, the book value of the equipment is overstated because the accumulated depreciation is not as high as it should be. The correct entry should be a debit to Depreciation Expense for $750 and a credit to Accumulated Depreciation - Equipment for $750.