The CFO of the Souta Microscope Corporation intentionally misclassified a downstream transportation expense in the amount of $66,375,000 as a product cost in an accounting period when the company made 11,800 microscopes and sold 7,800 microscopes. Souta rewards its officers with bonuses that are based on net earnings.
Required:
Indicate whether the elements on the financial statements (i. e., assets, liabilities, equity, revenue, expense, and net income) would be overstated or understated as a result of the misclassification of the upstream research and development expense.
Determine the amount of the overstatement or understatement for each element
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