Errors in accounting for long-term assets (Learning Objectives 3 & 4)

15–20 min.

Assume that on January 1 of year 1, Middleton Company purchased equipment at a cost of $470,000. Management expects the equipment to remain in service for five years, with zero residual value. Middleton Company uses the straight-line depreciation method. Through an accounting error, Middleton Company accidentally expensed the entire cost of the equipment at the time of purchase.

Requirement 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 AppendixLO1