Lewis Real Estate purchased a new photocopy machine on January 1, 2017 for $120,000. The company€™s bookkeeper made the following entry to record the acquisition:
Depreciation Expense (E, ˆ’RE)             120,000
    Cash (ˆ’A)                                                                 120,000
The photocopy machine has an estimated useful life of four years and an estimated salvage value of $20,000. Lewis Real Estate did not make any adjusting entry on December 31, 2017, or in any subsequent year associated with the photocopy machine. Furthermore, the company never discovered the error.

a. Assume that Lewis Real Estate uses the straight-line method to depreciate its fixed assets. Compute the values for the following chart:

b. In what direction and by how much will the accumulated depreciation account be misstated as of December 31, 2019?
c. In what direction and by how much will the retained earnings account be misstated prior to closing entries on December 31, 2019?
d. In what direction and by how much will the retained earnings account be misstated after closing entries on December 31, 2019?

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Correct Depreciation Expense Annual Difference Cumulative Difference Depreciation Expense per Company's Books Year 2017 2018 2019 2020