Depreciation expense on machinery is too high

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Reference no: EM133674879

Question

For each of the following situations, indicate the effect on assets, net income, and retained earnings at December 31, 2020 and 2021 as follows:

• O if the financial statement element is overstated.

• U if the financial statement element is understated.

• NE if there is no effect on the financial statements.

Provide a brief explanation for your choice eg NI U - expenses too high

a) Depreciation expense on machinery is too high for 2020 and the 2021 depreciation expense is correct.

b) A 3-year rental agreement was signed on Jan. 1 2020 and recorded as a prepaid asset. No rent expense has been recognized.

c) 2019 ending inventory was overstated by $10,000; 2020 inventory understated by $8,000; 2021 inventory was correct

d) A machine with a 15-year useful life was expensed when purchased in 2020.

e) Did not accrue interest expense on a note payable at Dec 31 2020. Interest expensed when paid in 2021.

Reference no: EM133674879

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