Question

On January 1, 2019, Cullumber Company purchased and installed a telephone system at a cost of $35,000. The equipment was expected to last five years with a salvage value of $3,700. On January 1, 2020, more telephone equipment was purchased to tie-in with the current system for $12,000. The new equipment is expected to have a useful life of four years and no salvage value. Through an error, the new equipment was debited to Utilities Expense. Cullumber Company uses the straight-line method of depreciation.

Prepare a schedule showing the effects of the error on Utilities Expense, Depreciation Expense, and Net Income for each year and in total beginning in 2020 through the useful life of the new equipment. (If an amount is understated then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45). If answer is zero please enter 0, do not leave any fields blank.)

		Utilities Expense		Depreciation Expense		Net Income
Year		Overstated (Understated)		Overstated (Understated)		Overstated (Understated)
2020		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
2021		enter a dollar amount		$enter a dollar amount		enter a dollar amount
2022		enter a dollar amount		$enter a dollar amount		enter a dollar amount
2023		enter a dollar amount		$enter a dollar amount		enter a dollar amount
Total		$enter a total for the Utilities Expense column		$enter a total for the Depreciation Expense column

Answer 1

	Depreciation for Current System	Cost / useful life      = $ 12,000 / 4 Years	$ 3,000
Year	Utilities expense (Overstated / Understated)	Depreciation expense (Overstated / Understated)	Net income (Overstated / Understated)
2020	$ 12,000 (Overstated)	($ 3,000) ( Understated)	($ 9,000) Understated
2021	0	($ 3,000) ( Understated)	$ 3,000 (Overstated)
2022	0	($ 3,000) ( Understated)	$ 3,000 (Overstated)
2023	0	($ 3,000) ( Understated)	$ 3,000 (Overstated)
Total	$ 12,000 (Overstated)	($ 12,000) ( Understated)	$ 0