1. ABC company paid $100K in cash for ordinary maintenance expenses. It improperly capitalized this amount. As a result of this error:

A. Cash flow from operations is not affected.

B. Net income is understated.

C. Leverage (total liabilities/total assets) is understated.

D. All of the above.

E. None of the above.

2. ABC company purchased machinery for $32,000. The machinery was later sold for $18,000. ABC had already recorded depreciation of $16,000 associated with this machinery. The fair value of the machinery at the date of sale was $19,000. What is the amount of ABCs gain/loss on disposal?