Songtress Company bought a machine on January 1,2012,for $24,000,at which time it had an estimated useful life of eight years,with no residual value.Straight-line depreciation is used for all of Songtress' depreciable assets.On January 1,2014,the machine's estimated useful life was determined to be only six years from the acquisition date.Accordingly,the appropriate accounting change was made in 2014.Songtress' income tax rate was 40 percent in all the affected years.In Songtress' 2014 financial statements,how much should be reported as the cumulative effect on prior years because of the change in the estimated useful life of the machine?
A) $0
B) $1,200
C) $2,000
D) $2,800

Question

Quizplus · Accepted Answer

Changes in estimates (like a change in the useful life of an asset) are accounted for prospectively, not retrospectively. Therefore, there is no cumulative effect on prior years' financial statements. The depreciation expense is simply adjusted in the current and future periods based on the new estimate.

Songtress Company Bought a Machine on January 1,2012,for $24,000,at Which