During the first monthof its current fiscal year, Green Co. incurred repair costs of$16,000 on a machine that had 4 years of remaining depreciablelife. The repair cost was inappropriately capitalized. Green Co.reported operating income of $164,000 for the current year.
Required:
a.Assuming that Green Co. took a full year's straight-linedepreciation expense in the current year, calculate the operatingincome that should have been reported for the current year.
b.Assume that Green Co.'s total assets at the end of the prior yearand at the end of the current year were $941,000 and $1,024,000,respectively. Calculate ROI (based on operating income) for thecurrent year using the originally reported data and then usingcorrected data. (Round your answers to 1 decimalplace.)
| ROI | |
| Original data | | % |
| Corrected data | | % |
c.Indicate the effect on ROI of subsequent years if the error is notcorrected.
| ROI will be toolow. |
| ROI will be toohigh. |
| ROI will remainsthe same. |
