55. LO.6 At the end of 2014, Magenta Manufacturing Company discovered that construction cost had been capitalized
Question:
55. LO.6 At the end of 2014, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2009 when it should have been treated as a cost of production equipment installation costs. As a result of the misclassification, the depreciation through 2012 was understated by $110,000, and depreciation for 2013 was understated by $90,000. What would be the consequences of correcting for the misclassification of the property cost?
a. The taxpayer uses the FIFO inventory method, and 25% of goods produced during the period were included in the ending inventory.
b. The taxpayer uses the LIFO inventory method, and no new LIFO layer was added during 2013.
Step by Step Answer:
South-Western Federal Taxation 2014 Corporations Partnerships Estates And Trusts
ISBN: 9781285424484
37th Edition
Authors: William H. Hoffman Jr., William A. Raabe, James E. Smith, David M. Maloney, James C. Young