Before the 20X1 books are closed you discover that on Januar

Before the 20X1 books are closed, you discover that on January 2, 20X, when a new machine was purchased for $20,000, the $20,000 was deb to Machinery Maintenance Expense. The new machine, which is being depreciated under the straight-line estimated salvage value. However, because of the error, no depreciation was recorded for the year. If no correction is made... ited method, has a 10-year life and no a. net income for 20X1 will be understated by $18,000 b. net income for 20X1 will be understated by $2,000 c. total assets on the December 31, 20X1 balance sheet will be understated by $20,000 d. the trial balance will not balance 36. The error described in question 35 is likely to be discovered because a. inspection of the trial balance would reveal Machinery had a balance that was not normal b. inspection of the trial balance would reveal Machinery Maintenance Expense had an unusually large balance c. inspection of the trial balance would reveal no depreciation expense d. none of the above 135

Solution

Q35. If no correction is made...
Answer: a. net income for 20X1 will be understated by $18,000

Expenses incorrectly charged to income statement - $20,000
Less: Depreciation not charged to income statement ($2,000) [$20,000/10]
Understatement of net income $18,000  

Q36. The error described in question 35 is likely to be discovered because..

Answer: b. inspection of the trial balance woukd reveal Machinery Maintenance Expense had an unusally large balance.