What Is the Effect of Overstating 2021 Depreciation Expense

question 97

Multiple Choice

What is the effect of overstating 2021 depreciation expense?

• A)Accumulated depreciation will be understated for 2021.
• B)Net income for 2021 will be overstated.
• C)Ending retained earnings for 2021 will be understated.
• D)Ending retained earnings for 2021 will be overstated.

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Definitions:

Financial Statements

Records that provide an overview of a company's financial condition in both short and long term, including the balance sheet, income statement, and cash flow statement.

Common Shares

Equity securities that represent ownership in a corporation, giving shareholders voting rights and a share in the company's profits through dividends.

Contingency Reserves

Funds or resources set aside to cover unexpected costs or losses in a project, program, or portfolio, providing a financial cushion.

Accelerated Depreciation

A method of depreciation that allows for a higher expense deduction in the early years of an asset's life, decreasing its book value more quickly.