On January 7, 2013, Yoder Corporation acquired machinery at a cost of $2,100,000. Yoder adopted the sum-of-the-years'-digits method of depreciation for this machine and had been recording depreciation over an estimated life of five years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this machine. Assuming a 30% tax rate, the cumulative effect of this accounting change, net of tax, is
A) $0
B) $280,000
C) $294,000
D) $420,000

Question

Quizplus · Accepted Answer

The change from sum-of-the-years'-digits to straight-line depreciation is a change in accounting estimate effected by a change in accounting principle, which is handled prospectively. There is no adjustment to prior periods, and thus, no cumulative effect to be reported. The effect of the change will be seen in the depreciation expense calculated for 2015 and future years, not as a cumulative effect adjustment.

On January 7, 2013, Yoder Corporation Acquired Machinery at a Cost