Use the following information for the next two questions. Link Co. purchased mac

Question

Use the following information for the next two questions. Link Co. purchased machinery that cost $1,800,000 on January 4, 2013. The entire cost was recorded as an expense instead of being capitalized and depreciated using the straight-line method per the company's policy. The machinery has a nine-year useful life and an anticipate S120,000 residual value. The error was discovered on February 2, 2015. Ignore income tax considerations. SO-1201000 4. Before any correcting entry was made, retained earnings was understated by a. $1,800,000. 11 800 1000 | / 2013 $1,426,667 0. d.

Explanation / Answer

Depreciation expense for 2013 and 2014= (1800000-120000)/9*2= 373333 Understatement of retained earnings = 1800000-373333= 1426667 Option C is correct

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