Analyze the effect of the following errors on the net profit figures of Yokahama Trading Company (YTC) for 20X0 and 20X1. Choose one of three answers: understated (U), overstated (O), or no effect (N). Problem 1 has been answered as an illustration.
1. Example: Failure to adjust at end of 20X0 for prepaid rent that had expired during December 20X0. YTC charged the remaining prepaid rent in 20X1. Answer: 20X0: O; 20X1: U. (Explanation: In 20X0, expenses would be understated and profits overstated. This error would carry forward so expenses in 20X1 would be overstated and profits understated.)
2. YTC omitted recording depreciation on Office Machines in 20X0 only. Correct depreciation was taken in 20X1.