Trumble Company purchased a machine on January 1, 20B, for $10,000. The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine. What would be the effect of this error on the 20B financial statements?
A) Overstatement of assets, profit, and shareholders' equity.
B) Overstatement of assets offset by an understatement of retained earnings.
C) Overstatement of assets offset by an understatement of shareholders' equity.
D) Overstatement of assets and an understatement of liabilities.

Question

Quizplus · Accepted Answer

The error results in lower depreciation expense, leading to an overstatement of assets (since accumulated depreciation is understated), profit (since expenses are understated), and shareholders' equity (since retained earnings are overstated due to higher net income).

Trumble Company Purchased a Machine on January 1, 20B, for $10,000