E7-46. (Learning Objective 1: Capitalizing versus expensing; measuring the effect of an error) All French Press (AFP) is a major French telecommunication conglomerate. Assume that early in year 1, AFP purchased equipment at a cost of €8.4 million. Management expects the equipment to remain in service for four years and the estimated residual value to be negligible. AFP uses the straight-line depreciation method. Through an accounting error, AFP expensed the entire cost of the equipment at the time of purchase. Because AFP is operated as a partnership, it pays no income tax.
Requirements Prepare a schedule to show the overstatement or understatement in the following items at the end of each year over the four-year life of the equipment:
1. Total current assets 2. Equipment, net 3. Net income