Quayle Company acquired machinery on January 1, 2002 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value.On January 1, 2007, Quayle estimated that the remaining life of this machinery was six years with no salvage value.How should this change be accounted for by Quayle?

Question

Quizplus · Accepted Answer

The change in estimate should be accounted for prospectively by adjusting future depreciation expense. Since the remaining life is now six years as of January 1, 2007, the future annual depreciation expense should be one-sixth of the book value on that date. This method is consistent with the straight-line method, and there is no need to revise prior years’ financial statements. Option A and B are incorrect because a change in estimate should be accounted for prospectively rather than retrospectively. Option D is incorrect because it does not reflect the updated estimate of the remaining useful life.

Quayle Company Acquired Machinery on January 1, 2002 Which It