Exhibit 23-1 On January 1, 2010, the Carol Company purchased a machine for $450, 000 with an estimate useful life of six years and a $30, 000 salvage value.Straight-line depreciation was used for financial reporting purposes and MACRS depreciation for income tax reporting.Effective January 1, 2012, Carol switched to the double-declining-balance depreciation method for financial statement reporting but not for income tax purposes.Carol can justify the change.
-
Refer to Exhibit 23-1.Assuming an income tax rate of 30%, the cumulative effect change reported in Carol's 2012 income statement would be
A)$ 0
B)$ 77, 000
C)$ 93, 333
D)$110, 000

Question

Quizplus · Accepted Answer

The cumulative effect of a change in depreciation method is accounted for prospectively, not retrospectively. Therefore, there is no cumulative effect to be reported in the income statement for the year the change is made.

Exhibit 23-1 on January 1, 2010, the Carol Company Purchased