Corrnuto Equipment Manufacturers, Inc. (CEM) reported the net book value of a plant asset at $ 2,600,000 as of the beginning of the current year. There is a $ 500,000 expected residual value and the estimated useful life is 25 years. At the beginning of the current year, following 10 full years of depreciation, the company determined that the asset will only be useful for another 10 years and reduced the expected residual value to $ 100,000. The change in estimate is needed to reflect extended usage and running the factory above normal capacity to meet increased demand. CEM uses the straight-line method of depreciation. The company is subject to a 40% tax rate.
Required
a. Determine the original cost of CEM’s plant asset.
b. Compute the annual depreciation expense for the first 10 years of the asset’s life.
c. Prepare the journal entry to record the change in estimate.
d. Prepare the footnote disclosure for the accounting change.