On January 1, 2014, Pyle Company purchased an asset that cost $50,000 and had no estimated residual value. The estimated useful life of the asset is 8 years and straight-line depreciation is used. An error was made in 2014 because the total amount of the asset's cost was debited to an expense account for 2014 and no depreciation was recorded. Pretax income for 2014 was $42,000. How much is the correct 2014 pretax income?

Question

Quizplus · Accepted Answer

The correct 2014 depreciation expense is $50,000/8 = $6,250. Since this expense was not recorded, it results in an overstatement of expenses and an understatement of pretax income. Therefore, the correct pretax income for 2014 is $42,000 + $6,250 = $48,250. The only answer option that is close to this amount is C.

On January 1, 2014, Pyle Company Purchased an Asset That