At the beginning of the current year, a capital expenditure of $24,000 for equipment with an estimated useful life of six years (and no residual value)was debited erroneously to maintenance expense.Straight-line depreciation is used.This error will cause the current year's ending retained earnings to be:

Question

Quizplus · Accepted Answer

The error causes an understatement of assets by $24,000 and an understatement of depreciation expense by $4,000 ($24,000/6 years). Therefore, the net effect on retained earnings is an understatement of $20,000 ($24,000 - $4,000).

At the Beginning of the Current Year, a Capital Expenditure