Trumble Company purchased a machine on January 1,20B,for $10,000.The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine.What would be the effect of this error on the 20B financial statements?
A)Overstatement of assets offset by an understatement of shareholders' equity.
B)Overstatement of assets offset by an understatement of retained earnings.
C)Overstatement of assets,profit,and shareholders' equity.
D)Overstatement of assets and an understatement of liabilities.

Question

Quizplus · Accepted Answer

If the company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine, then the depreciation expense would be lower than it should be. As a result, the net income (profit) would be overstated, and so would the shareholders' equity. Additionally, since the machine is an asset, the overstatement of assets would indirectly lead to an overstatement of shareholders' equity. Therefore, option C is the best choice.

Trumble Company Purchased a Machine on January 1,20B,for $10,000