I need help solving the following problem and I would also like to see the steps

Question

I need help solving the following problem and I would also like to see the steps.

Kielty Company purchased machinery that cost $300,000 on January 1, 2012. The entire cost was recorded as an expense. The machinery has a nine-year life and a $12,000 residual value. Kielty uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2014. Ignore income tax considerations.

48. Kielty’s income statement for the year ended December 31, 2014, should show that cumulative effect of this error in the amount of: A. $236,000. B. $224,000. C. $221,333. D. $ -0-.

49. Before the correction was made and before the books were closed on December 31, 2014, retained earnings was understated by: A. $300,000. B. $236,000. C. $224,000. D. $221,333.

Explanation / Answer

01.01.2012 Cost = $300,000 life 9yr salvage value = $12,000 Depreciation = [Cost-Salvage Value]/life = [$300000-$12000]/9 = 32000 $ If dep was corrctly charged, dep exp for the year 2012would have been $32000 But the company charged the entire cost i.e, $300000 Therefore the the co. paid cumulative error of $ 268000 48 The income statement of the year dec 2014, will have no effect has error has been identified during the year and now dep will be claimed appropriatels Therefore Ans is D 0 49 Before making the correction the co's profit was understated by $300000

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