Reference no: EM132329258
QUESTION:
On January 1, 2018, ABC purchased a machine by issuing a $500,000 non-interest bearing note with payments of P&I to be made at the end of the year on December 31st for 5 years. In recent transactions ABC paid 9% interest. The present value of one at 9% for 5 periods is .65 and the present value of an ordinary annuity of one for 5 periods at 9% is 3.89. ABC recorded the machine by the following journal entry:
Machine 500,000
Note Payable 500,000
On December 31, 2018. when payment on the note was made ABC debited the Note Payable and credited Cash for $100,000. ABC depreciated the machine by using straight-line method assuming a 10-year life and salvage value of $50,000. While depreciation was recorded for the year, no interest was recorded on the note and the entire cash payment was applied as principal repayment.
As a result of the error in recording the asset, how are the following accounts affected for the year-end 2018 financial statements?
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Assets
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Liabilities
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Operating income
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As of Dec 31, 2018
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Question : Assets are overstated by:
a. $ 6,100
b. $ 99,900
c. $104,900
d. $111,000
e. $157,500
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