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What will be effect on net income

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Problem 1: On January 2, Bailey Company paid $20,000 to purchase equipment that has a useful life of 8 years. The equipment will be depreciated equally over the 8-year period as depreciation expense. The cost of $20,000 is divided by the useful life of 8 years to determine the amount of the yearly depreciation expense of $2,500. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on:

(a) Income statement accounts (overstated, understated, or no effect)?

(b) Net income (overstated, understated, or no effect)?

(c) Balance sheet accounts (overstated, understated, or no effect)?

Reference no: EM132473859

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