What effect would the misestimation have on the book value

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Reference no: EM132823529

Waste Management Inc. capitalizes the cost of land for "dumps" and depreciates the cost using the "units of production" method. They estimate how many tons of trash the dump can hold to derive a per-ton dumping price, and multiply the per-ton dumping price by the number of tons dumped each year to record as depreciation. Assume that Waste Management's management had underestimated the number of tons that the dumps could hold when the land was acquired and did not discover the misestimation until the final year of holding the asset.

Problem 1:
What effect would this misestimation have on the book value of assets in the first year of holding the asset?

a. Understated

b. Not affected

c. Overstated

Reference no: EM132823529

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