Lewis Real Estate purchased a new photocopy machine on January 1, 1996, for $120,000. The company’s bookkeeper made the following entry to record the acquisition. Depreciation Expense (E, — SE) 120,000 Cash (—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, 1996, or in any subsequent year associated with the photocopy machine. Furthermore, the company never discovered the error. REQUIRED:

a. Assume that Lewis Real Estate uses the straight-line method to depreciate its fixed assets. Compute the values for the following chart. Depreciation Expense Correct Annual Cumulative Year per Company’s Books Depreciation Expense Difference Difference 1996 1997 1998 1999

b. In what direction and by how much will the account Accumulated Depreciation be mis¬ stated as of December 31, 1998?

c. In what direction and by how much will the account Retained Earnings be misstated prior to closing entries on December 31, 1998?

d. In what direction and by how much will the account Retained Earnings be misstated after closing entries on December 31, 1998?