Question - Change in Accounting Principle
Tom Zuluaga Company placed an asset in service on January 2, 2010. Its cost was $1,350,000 with an estimated service life of 6 years. Salvage value was estimated to be $90,000. Using the double-declining-balance method of depreciation, the depreciation for 2010, 2011, and 2012 would be $450,000, $300,000, and $200,000 respectively. During 2012 the company's management decided to change to the straight-line method of depreciation. Assume a 35% tax rate.
Instructions:
(a) How much depreciation expense will be reported in the income from continuing operations of the company's income statement for 2012? (Hint: Use the new depreciation in the current year.)
(b) What amount will be reported as an adjustment to the beginning balance of retained earnings to reflect the effect of the change in accounting principle?