Tech Manufacturing Corporation reports the following situations in 2020 with respect to its high-tech manufacturing equipment. Machine
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Question:
Tech Manufacturing Corporation reports the following situations in 2020 with respect to its high-tech manufacturing equipment.
- Machine 1 was acquired at a cost of $872,000 in 2017. The machine was depreciated on a straight-line basis over its expected six-year life. At the end of 2020, management decided that this machine should have been depreciated over a total useful life of eight years. Salvage value, expected to be negligible, has not changed.
- Machine 2 was acquired at a cost of $448,500 in 2019. It was being depreciated on a declining-balance method using a rate of 40%. Salvage values were expected to be minimal. In 2020, management decided that, based on the usage patterns seen to date, unit-of-production would be a more appropriate method of depreciation. The machine is used sporadically and suffers from wear and tear only as used (i.e., obsolescence is not much of a factor in the loss of utility). Estimated units-of-production total 350,000 of which 75,000 units were produced in 2019 and 30,000 units in 2020.
- Machine 3 was acquired in 2017 at a cost of $325,000. Management discovered in 2020 that the machine was expensed in 2017, even though it had a useful life of 10 years, with a 10% salvage value. Straight-line depreciation should have been used for this asset.
For all depreciation methods, the company follows a policy of recording a full year of depreciation charged in the first year, but no depreciation is charged in the year of disposal.
Required:
- Classify each of the changes described above and identify the correct accounting treatment by putting an “X” in the appropriate cell in the table below.
Classification as change in: | Accounting Treatment | ||||||||||||||||||||||
Estimate | Accounting Policy | Accounting Error | Prospectively | Retroactively | |||||||||||||||||||
Item a | |||||||||||||||||||||||
Item b | |||||||||||||||||||||||
Item c |
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Related Book For
Accounting
ISBN: 978-0324662962
23rd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
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