Use the following information for questions 64 and 65.
Link Co. purchased machinery that cost $1,800,000 on January 4, 2013. The entire cost was recorded as an expense. The machinery has a nine-year life and a $120,000 residual value. The error was discovered on December 20, 2015. Ignore income tax considerations.
-Link's income statement for the year ended December 31, 2015, should show the cumulative effect of this error in the amount of
A) $1,613,333.
B) $1,426,667.
C) $1,240,000.
D) $0.

Question

Quizplus · Accepted Answer

The error of expensing the machinery instead of capitalizing and depreciating it over its useful life does not affect the income statement directly once discovered. Instead, prior period financial statements would be restated. The income statement for the current period (2015) would not show a cumulative effect of this error; adjustments would be made to prior periods' financial statements and the asset's carrying amount on the balance sheet.

Use the Following Information for Questions 64 and 65