On January 1, 2012, Keller Company purchased and installed a telephone system at

Question

On January 1, 2012, Keller Company purchased and installed a telephone system at a cost of $20,000. The equipment was expected to last five years with a salvage value of $3,000. On January 1, 2013, more telephone equipment was purchased to tie-in with the current system for $10,000. The new equipment is expected to have a useful life of four years. Through an error, the new equipment was debited to Utilities Expense. Keller Company uses the straight-line method of depreciation.

Prepare a schedule showing the effects of the error on Utilities Expense, Depreciation Expense, and Net Income for each year and in total beginning in 2013 through the useful life of the new equipment.

Year    Utilities Expense Depreciation Expense Net Income

Overstated Overstated Overstated

(Understated) (Understated) (Understated)

2013 $____________________ $_______________________ $_______________

2014 _____________________ ________________________ ________________

2015 _____________________ ________________________ ________________

2016 _____________________ ________________________ ________________

__________________________________________________________________________________________________

TOTAL _____________________ ________________________ ________________

Explanation / Answer

Note : Negative Figure Indicate the Understated , Positive Figure indicate Overstated

Year Utilities Expense Overstated (Understated) Depreciation Expense Overstated (Understated) Net Income Overstated (Understated) 2013 10000 -2500 -7500 2014 0 -2500 2500 2015 0 -2500 2500 2016 0 -2500 2500 Total 10000 -10000 0

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