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Company ABC acquired a machine at the beginning of the year. The machine had a 6-year...

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Accounting

Company ABC acquired a machine at the beginning of the year. Themachine had a 6-year useful life. He expensed the entireacquisition cost in the current year. His error has what effect oncurrent period net income (NI) and retained earnings at the end ofthe 4th year (RE4)?

a. NI is understated; RE4 is understated

b. NI is understated; RE4 is correct

c. NI is overstated; RE4 is correct

d. NI is overstated; RE4 is understated

e. None of the above

Please help to explain for my better understanding.

Answer & Explanation Solved by verified expert
3.8 Ratings (468 Votes)
Correct answer a NI is understated RE4 is understated Explanation with the help of an example Suppose Company ABC acquired a machine for 60000 at the beginning of the year    See Answer
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