Assume that on January 1 of year 1, Midtown Auto Repair purchased equipment at a cost of $48,000. Management expects the equipment to remain in service for five years, with zero residual value. Midtown Auto Repair uses the straight-line depreciation method. Through an accounting error, Midtown Auto Repair accidentally expensed the entire cost of the equipment at the time of purchase.

Requirement

Prepare a schedule to show the overstatement or understatement in the following items at the end of each year over the five-year life of the equipment:

a. Equipment, net

b. Net income