Use the following information for questions 47 and 48.
On January 1, 2012, Nobel Corporation acquired machinery at a cost of $1,200,000. 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 2015, a decision was made to change to the double-declining balance method of depreciation for this machine.
-Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is
A) $134,400.
B) $0.
C) $157,920.
D) $225,600.

Question

Quizplus · Accepted Answer

The cumulative effect of a change in depreciation method is accounted for prospectively, not retrospectively. Therefore, there is no adjustment to beginning retained earnings. Changes in depreciation method are considered changes in accounting estimates effected by a change in accounting principle, and such changes are applied prospectively. This means that past financial statements are not revised, and there is no immediate impact on beginning retained earnings.

Use the Following Information for Questions 47 and 48