Indicate the effect—Understate, Overstate, No Effect—that each of the following errors has on 2020 net income and 2021 net income. 2020 2021 (a) Equipment (with a useful life of 5 years) was purchased and expensed in 2018. Select an option Select an option (b) Wages payable were not recorded at 12/31/20. Select an option Select an option (c) Equipment purchased in 2020 was expensed. Select an option Select an option (d) 2020 ending inventory was overstated. Select an option Select an option (e) Patent amortization was not recorded in 2021. Select an option Select an option

The answer is provided below

Explanation:

The net income is excess of revenues over expenses after the adjustment for depreciation expense and the income tax expense. Net income is also called the net profit.

(a) Equipment (with a useful life of 5 years) was purchased and expensed in 2018.

2020 : It will be overstated in the net income.

2021: It will be overstated in the net income.

b. Wages payable were not recorded at 12/31/20.

2020: It will be overstated in the net income.

2021: It will be understated in the net income.

c. Equipment purchased in 2020 was expensed.

2020: It will be understated in the net income.

2021: It will be overstated in the net income

d. 2020 ending inventory was overstated.

2020: It will be overstated in the net income.

2021: It will be understated in the net income.

e. Patent amortization was not recorded in 2021.

2020: It will be no effect in the net income.

2021: It will be overstated in the net income