(Learning Objective 1: Capitalizing versus expensing PPE costs) Assume Nation Car Rentals changed the tires for its entire fl eet of cars at a cost of $1.5 million, which Nation paid in cash. Further, assume the Nation accountant erroneously capitalized this expense as part of the cost of the fl eet.

Show the effects of the accounting error on Nation Car Rentals’ income statement. To answer this question, determine whether revenues, total expenses, and net income were overstated or understated by the accounting error.