Determine the effect on net income of a change in the depreciation method
Response to the following problem:
Kerusi, Inc., has a popular line of boogie boards. Kerusi reported net income of $64 million for 2014. Depreciation expense for the year totaled $30 million. Kerusi, Inc., depreciates plant assets over eight years using the straight-line method and no residual value. Kerusi, Inc., paid $240 million for plant assets at the beginning of 2014. At the start of 2015, Kerusi changed its method of accounting for depreciation to double-declining-balance (DDB). The year 2015 is expected to be the same as 2014 except for the change in depreciation method. If Kerusi had been using DDB depreciation all along, how much net income can Kerusi, Inc., expect to earn during 2015? Ignore income tax.