Question

2) Equipment was purchased at the beginning of 2019 for $900,000. At the time of its purchase, the equipment was estimated to have a useful life of five years and a salvage value of $100,000. The equipment was depreciated using the straight-line method of depreciation through 2021. At the beginning of 2022, the estimate of useful life was revised to a total life of seven years and the expected salvage value was changed to $42,500. The amount to be recorded for depreciation for 2022 is _______

3) XYZ Company purchased a machine on January 1, 2018, for $900,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2022, XYZ determined that the machine had an estimated useful life of seven years from the date of acquisition with no salvage. An accounting change was made in 2022 to reflect this additional information. What is the amount of depreciation expense for the year ended December 31, 2022?

4) Green Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/20 and 12/31/21 contained the following errors: 2020 2021 Ending inventory $40,000 understatement $60,000 overstatement Depreciation expense 15,000 overstatement 40,000 overstatement Assume that the 2020 errors were not corrected and that no errors occurred in 2019. By what amount will 2020 income before income taxes be overstated or understated?

5) Accrued salaries payable of $108,000 were not recorded at December 31, 2020. Office supplies on hand of $60,000 at December 31, 2021 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause retained earnings at December 31, 2021 to be in error by what amount

6) Orange Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the following errors:

Dec. 31, 2020 Dec. 31, 2021

Ending inventory $198,000 overstated $219,000 understated

Depreciation expense 126,000 overstated —

In addition, on December 31, 2021 fully depreciated equipment was sold for $44,000, but the sale was not recorded until 2022. No corrections have been made for any of the errors. Ignore income tax considerations.

The total effect of the errors on the balance of Orange's retained earnings at December 31, 2021 is understated by _______

Answer 1

2. Depreciation for 2019, 2020 and 2021 = [(Cost-Salvage)/ Life]*3

= [(900000-100000)/5]*3

= 480,000

New estimated life = 7 years total

New estimated salvage = $42500

Depreciation for 2022 = [(Cost-Depreciation)-Salvage] / Remaining Life

= (900000-480000)-42500 / 4

= $94375

3. Cost = $900000

Useful life = 6 Years

Depreciation for 4 years = (900000/6)*4 = $600000

Jan 1, 2022 Remaining Life = 7-4 = 3Years

Depreciation for 2022 = [(Cost-Depreciation)-Salvage] / Remaining Life

= [(900000-600000)-0]/3

= 300000/3

= $100000

4. 2020 Ending inventory $40,000 understatement - Means COGS overstated resulting in understatement of Net Income by $40000

Depreciation expense 15,000 overstatement - Means Net Income understated by $15000

Net Income understated by $55000