Firestone Shoes is a family-owned retail shoe operation with two stores. Assume that early in Year 1, Firestone Shoes purchased computerized point-of-sale and operating systems costing $150,000. Bob Firestone expects this equipment will support the inventory and accounting requirements for 4 years. Because of technology obsolescence, no residual value is anticipated. Through error, Firestone Shoes accidentally expensed the entire cost of the equipment at the time of the purchase. Firestone Shoes’ accounting policy for equipment amortization is the straight-line amortization method. The company is operated as a sole proprietorship, so it pays no corporate income tax.

Required

Compute the overstatement or understatement in these accounts immediately after purchasing the equipment:

1. Equipment

2. Net income