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 the entire $24,000 to be expensed immediately instead of being capitalized and depreciated over six years. The correct depreciation for the year should be $4,000 ($24,000/6). Thus, the retained earnings are understated by the difference between the erroneous expense and the correct depreciation, which is $24,000 - $4,000 = $20,000.

At the Beginning of the Current Year,a Capital Expenditure of $24,000