1. Link Co. purchased machinery that cost $810,000 on January 1, 2009. The entire cost was recorded as an expense. The machinery has a nine-year life and a $54,000 residual value. The error was discovered on December 20, 2011. Link is subject to a 40% tax rate.

Link's net income from the year ended December 31, 2010, was understated by
A) $84,000.
B) $486,000.
C) $290,400.
D) $435,600.

2. Before the correction was made, and before the books were closed on December 31, 2011, retained earnings was understated by

A) $334,800.
B) $256,800.
C) $385,200.
D) $223,200.