Assume that early in year 1, Marginal Company purchased equipment at a cost of $520,000. Management expects the equipment to remain in service for five years, with zero residual value. Marginal Company uses the straight-line depreciation method. Through an accounting error, Marginal Company accidentally expensed the entire cost of the equipment at the time of purchase.
Requirement
1. Prepare a schedule to show the overstatement or understatement in the following items at the end of each year over the five-year life of the equipment:
a. Equipment, net
b. Net income