On January 1, 2010, Penaji Corporation acquired equipment costing $65,000. It was estimated at that time that

Question:

On January 1, 2010, Penaji Corporation acquired equipment costing $65,000. It was estimated at that time that this equipment would have a useful life of eight years and a residual value of $3,000. The straight-line method of depreciation is used by the company for its equipment, and its year end is December 31.

At the beginning of 2012 (the beginning of the third year of the equipment's life), the company's engineers reconsidered their expectations. They estimated that the equipment's useful life would more likely be six years in total, instead of the previously estimated eight years.

Instructions

(a) Calculate the equipment's accumulated depreciation and carrying amount at the beginning of 2012 immediately before the change in useful life.

(b) Would you expect Penaji's depreciation expense to increase or decrease in 2012 after the change in useful life? Why?

(c) Should the company treat the change in useful life retro actively or only for current and future periods? Explain.

(d) If Penaji had not revised the equipment's remaining useful life at the beginning of 2012, what would its total depreciation expense have been over the equipment's life? What would have been the accumulated depreciation and carrying amount at the end of the equipment's useful life?

(e) Would you expect the company's total depreciation expense to change after the useful life has been revised? Would there be changes to the accumulated depreciation and carrying amount at the end of the equipment's useful life?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  book-img-for-question

Financial Accounting Tools for Business Decision Making

ISBN: 978-1118024492

5th Canadian edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine

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