Arena, Inc. uses straight-line depreciation for its equipment. Arena purchased equipment for $300,000 and estimated its useful life at 8 years. The bookkeeper failed to consider the residual value of $50,000. What is the impact on earnings per share and operating income of failing to consider the residual value?
a. Both earnings per share and operating income will be understated.
b. Earnings per share will be understated and operating income will be overstated.
c. Earnings per share will be overstated and operating income will be understated.
d. Both earnings per share and operating income will be overstated.