Ernst Company purchased equipment that cost $3,000,000 on January 1, 2020. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2022. Ernst is subject to a 20% tax rate. Before the correction was made and before the books were closed on December 31, 2022, retained earnings was understated by $2,400,000. O $1,888,000. O $1,770,000. O $1,792,000.

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Ernst Company purchased equipment that cost $3,000,000 on
January 1, 2020. The entire cost was recorded as an expense. The
equipment had a nine-year life and a $120,000 residual value. Ernst
uses the straight-line method to account for depreciation expense.
The error was discovered on December 10, 2022. Ernst is subject to
a 20% tax rate. Before the correction was made and before the
books were closed on December 31, 2022, retained earnings was
understated by
$2,400,000.
O $1,888,000.
O $1,770,000.
O $1,792,000.
Transcribed Image Text:Ernst Company purchased equipment that cost $3,000,000 on January 1, 2020. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2022. Ernst is subject to a 20% tax rate. Before the correction was made and before the books were closed on December 31, 2022, retained earnings was understated by $2,400,000. O $1,888,000. O $1,770,000. O $1,792,000.
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Section 179 Deduction and Modified Accelerated Cost Recovery System (MACRS) Depreciation
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