Assume Worldwide Airlines repaired a Jumbo 747 aircraft at a cost of $1.1 million, which Worldwide paid in cash. Further, assume the Worldwide accountant erroneously capitalized this expense as part of the cost of the plane.
Show the effects of the accounting error on Worldwide Airlines’ income statement. To answer this question, determine whether revenues, total expenses, and net income were overstated or understated by the accounting error.