A capital improvement was made to Machine B at a total cost of $20,000. This improvement increased the capacity of the machine to do work but did not increase its useful life. Machine B has a current book value of $120,000, a remaining useful life of 4 years, and zero salvage value. The entry to record this transaction was a debit to Maintenance Expense and a credit to Cash for $20,000.

Depreciation on the machine is recorded using the straight-line method.

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Q: Compute the effect of the error on net income, assets, and shareholder’s equity for the fiscal years 2007 through 2010 (ignore income taxes).

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