Dustin Company owns the office building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:
Acquisition cost .....................$ 330,000
Accumulated depreciation (based on straight-line depreciation, an
Estimated life of 50 years, and a residual value of $ 30,000) .... 78,000
Following a careful study, management decided in January of this year that the total estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced to $ 22,500 (from $ 30,000). The depreciation method will not change.
Required:
1. Compute the annual depreciation expense prior to the change in estimates.
2. Compute the annual depreciation expense after the change in estimates.
3. What will be the net effect of changing the estimates on the statement of financial position, net earnings, and cash flows for the year?