Response to the following problem:
Papillon is a catalog merchant in France similar to Lands' End in the United States. Papillon uses automated shipping equipment. Assume that early in year 1, Papillon purchased equipment at a cost of $5 million euros (€5 million). Management expects the equipment to remain in service five years, with zero residual value. Papillon uses the straight-line depreciation method. Through an accounting error, Papillon accidentally expensed the entire cost of the equipment at the time of purchase.
Required
Prepare a schedule to show the overstatement or understatement in the following items at the end of each year over the five-year life of the equipment.
1. Equipment, net
2. Net income