During the first month of its current fiscal year, Green Co.incurred repair costs of $19,000 on a machine that had 4 years ofremaining depreciable life. The repair cost was inappropriatelycapitalized. Green Co. reported operating income of $169,000 forthe current year.
Required:
a. Assuming that Green Co. took a full year'sstraight-line depreciation expense in the current year, calculatethe operating income that should have been reported for the currentyear.
b. Assume that Green Co.'s total assets at theend of the prior year and at the end of the current year were$946,000 and $1,017,000, respectively. Calculate ROI (based onoperating income) for the current year using the originallyreported data and then using corrected data. (Round youranswers to 1 decimal place.)
c. Indicate the effect on ROI of subsequentyears if the error is not corrected.
| ROI will be too low. |
| ROI will be too high. |
| ROI will remains thesame.
|
