Chap020 (accounting) 71 - salvage value Due to an error no...

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71. Moonland Company's income statement contained the following errors: Ending inventory, December 31, 2011, understated by $6,000 Depreciation expense for 2011 overstated by $1,000 What is the effect of the errors on 2011 net income before taxes? A. Overstated by $5,000. B. Understated by $5,000. C. Understated by $7,000. D. Overstated by $7,000. AACSB: Analytic Bloom's: Analysis Learning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors; regardless of the type of error or the timing of its discovery. Level of Learning: Medium 72. Popeye Company purchased a machine for $300,000 on January 1, 2010. Popeye depreciates machines of this type by the straight-line method over a five-year period using no
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Unformatted text preview: salvage value. Due to an error, no depreciation was taken on this machine in 2010. Popeye discovered the error in 2011. What amount should Popeye record as depreciation expense for 2011? The tax rate is 40%. A. $120,000. B. $60,000. C. $36,000. D. $72,000. $300,000/5 = $60,000 Only one year of depreciation is expensed in the income statement. The error correction would be recorded as a prior period adjustment. AACSB: Analytic Bloom's: Application Learning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors; regardless of the type of error or the timing of its discovery. Level of Learning: Medium...
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