Wayfair Company purchased equipment that cost $3,000,000 on January 1, 2020. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Wayfair uses the straight-line method to account for depreciation expense. The error was discovered on November 10, 2021 (before 2021 books were closed). Ignore the tax effect.

Wayfairs net income for the year ended December 31, 2020, was

- Understated by $2,680,000

- Understated by $7,000,000

- Overstated by $2,680,000

- Overstated by $3,000,000