On January 1, 2017, Lane Company made a $12,000 expenditure on a fully depreciated machine. The expenditure increased the expected life of the new machine for two years until December 31, 2018. Lane uses straight-line depreciation with no salvage value. However, Lane erroneously expensed this capital expenditure. As a result of this error,

Question

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The expenditure of $12,000 should have been capitalized and depreciated over the remaining useful life of the machine (2 years). Since the expenditure was erroneously expensed, Lane Company understated its 2017 income by $12,000 (the entire expenditure) and will overstate its 2018 income by $12,000 (the entire expenditure). Therefore, 2017 income is understated by $6,000 and 2018 income is overstated by $6,000 ($12,000/2).

On January 1, 2017, Lane Company Made a $12,000 Expenditure