Answer ONLY if you are planning to show work.

1) Ernst Company purchased equipment that cost $750,000 on January 1, 2010. The entire cost was recorded as an expense. The equipment had a nine-year life and a $30,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2012. Ernst is subject to a 40 % tax rate.

Before the correction was made and before the books were closed on December 31, 2012, retained earnings was understated by

a) $354,000.

b) $450,000

c) $332,000

d) $336,000

2)

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2011 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:

a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $155,213 are due on December 31 of each year.

b) The fair value of the machine on January 1, 2011, is $400,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.

c) Alt depreciates all machinery it owns on a straight-line basis.

d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?

a) DEPRECIATION EXPENSE

B) RENTAL REVENUE

C) RENTAL REVENUE AND DEPRECIATION EXPENSE

d) INTEREST INCOME

Thank you so much for your help