Tom Zuluaga Company placed an asset in service on January 2, 2012. Its cost was $1,350,000 with
Question:
Tom Zuluaga Company placed an asset in service on January 2, 2012. Its cost was $1,350,000 with an estimated service life of 6 years. Salvage value was estimated to be $90,000. Using the double-declining-balance method of depreciation, the depreciation for 2012, 2013, and 2014 would be $450,000, $300,000, and $200,000 respectively. During 2014 the company’s management decided to change to the straight-line method of depreciation. Assume a 35% tax rate.
Instructions
(a) How much depreciation expense will be reported in the income from continuing operations of the company’s income statement for 2014?
(b) What amount will be reported as an adjustment to the beginning balance of retained earnings to reflect the effect of the change in accounting principle?
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield