On January 1 of year 1, Mariposa Company purchased equipment at a cost of $460,000. Management expects the equipment to remain in service for five years, with zero residual value. Mariposa Company uses the straight-line depreciation method. Through an accounting error, Mariposa Company accidentally expensed the entire cost of the equipment at the time of purchase.
1. 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