Use the following information for questions 53 and 54.
Swift Company purchased a machine on January 1, 2012, for $600,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2015, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made in 2015 to reflect this additional information.
-Assume that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate was 30% in 2012, 2013, 2014, and 2015. What should be reported in Swift's income statement for the year ended December 31, 2015, as the cumulative effect on prior years of changing the estimated useful life of the machine?
A) $0
B) $40,000
C) $60,000
D) $210,000

Question

Quizplus · Accepted Answer

Changes in accounting estimates, such as a change in the useful life of a machine, are accounted for prospectively, not retrospectively. This means that there is no cumulative effect reported in the current period's income statement for changes in estimates. The depreciation expense is simply adjusted in the current and future periods based on the new estimate.

Use the Following Information for Questions 53 and 54