Use the following to answer question 21: Ernst Company purchased equipment that cost $3,000,000 on January 1, 2017. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2019. Ernst is subject to a 40% tax rate. 21. Ernst's net income for the year ended December 31, 2017, was understated by A) $1,608,000. B) $1,800,000. C) $2,680,000. D) $3,000,000. 22. On January 1, 2017, Janik Corp. acquired a machine at a cost of $900,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Janik's 2017 financial statements. The oversight was discovered during the preparation of Janik's 2018 financial statements. Depreciation expense on this machine for 2018 should be A) $0. B) $180,000. C) $225,000. D) $360,000. 23. A lessee records interest expense in both a capital lease and an operating lease. A) True B) False