During 2018, Dragon Company determined, based on new information, that equipment previously depreciated using a ten-year life and a salvage value of $100,000 had a total estimated life of only six years and a salvage value of $50,000. The equipment was acquired on January 1, 2016 at a cost of $600,000, and was depreciated using the straight-line method. Dragon made an accounting change in 2018 to reflect this additional information, and the change was approved by the IRS. Dragon has an income tax rate of 30%. Dragon's income before depreciation, before income taxes, and before any retroactive effect of the accounting change if any) for the year ended December 31, 2018, was $180,000. What is the amount of Dragon's net income for 2018?
A) $80,000
B) $67,500
C) $56,000
D) $47,250

Question

Quizplus · Accepted Answer

The revised depreciation expense for 2018 is calculated based on the new estimated life and salvage value. The accumulated depreciation for 2016 and 2017 is adjusted, and the remaining depreciable amount is spread over the remaining useful life. The tax effect is then applied to find the net income.

During 2018, Dragon Company Determined, Based on New Information, That