Kentucky Enterprises Purchased a Machine on January 2, 2010, at a Cost

Multiple Choice

Kentucky Enterprises purchased a machine on January 2, 2010, at a cost of $120,000. An additional $50,000 was spent for installation, but this amount was charged erroneously to repairs expense. The machine has a useful life of five years and a salvage value of $20,000. As a result of the error,

A) retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $6,000.
B) retained earnings at December 31, 2011, was understated by $38,000 and 2011 income was overstated by $6,000.
C) retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $10,000.
D) 2010 income was understated by $50,000.