QUESTION 1: On January 1, 2008, Nobel Corporation acquired machinery at a cost of $600,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2011, a decision was made to change to the double-declining balance method of depreciation for this machine.
A. ASSUMING A 30% TAX RATE, THE CUMULATIVE EFFECT OF THIS ACCOUNTING CHANGE ON BEGINNING RETAINED EARNINGS, IS??
B. THE AMOUNT THAT NOBEL SHOULD RECORD AS DECPRECIATION EXPENSE FOR 2011 IS?
QUESTION 2: Ernst Company purchased equipment that cost $750,000 on January 1, 2010. The entire cost was recorded as an expense. The equipment had a nine-year life and a $30,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2012. Ernst is subject to a 40 % tax rate.
Before the correction was made and before the books were closed on December 31, 2012, retained earnings was understated by
a. $332,000.
b. $336,000.
c. $354,000.
d. $450,000.
QUESTION 3: On January 1, 2008, Lake Co. purchased a machine for $792,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2011, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $72,000. An accounting change was made in 2011 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2011 of
a. $438,000.
b. $462,000.
c. $480,000.
d. $528,000