On January 1, 2010, the MMA Company purchased a machine for $36, 000 that had a ten-year estimated useful life and no estimated salvage value.At the start of the seventh year of use, a new energy saving device was added to the machine that extended its original useful life an additional two years.This change should be accounted for in the seventh year by
A)including the cumulative effect of the change in net income for the current period
B)depreciating the remaining book value over four years
C)retroactively adjusting income of prior periods using the newly adjusted useful life
D)depreciating the remaining book value over six years

Question

Quizplus · Accepted Answer

The addition of the energy saving device during the seventh year results in the company increasing the useful life of the machine from 10 years to 12 years. Therefore, the remaining book value of the machine should be depreciated over the new remaining useful life of six years (12 years - 6 years already used), resulting in choice D being the best option. Retroactively adjusting income of prior periods (choice C) would not be appropriate since the change in useful life occurred in the current year. Including the cumulative effect of the change in net income (choice A) is not necessary since this is not a change in accounting principle or estimate. Depreciating the remaining book value over four years (choice B) ignores the addition of the energy saving device that extended the useful life by two years.

On January 1, 2010, the MMA Company Purchased a Machine