Hopper Company acquired machinery on January 1, 2005 which it amortized under the straight-line method with an estimated life of fifteen years and no residual value.On January 1, 2010, Hopper estimated that the remaining life of this machinery was six years with no residual value.How should this change be accounted for by Hopper?

Question

Quizplus · Accepted Answer

The change in estimate should be accounted for prospectively by adjusting the depreciation expense for future years. Therefore, Hopper should set future annual depreciation equal to one-sixth of the book value on January 1, 2010, over the remaining expected life of the machinery (i.e. six years). This method will result in a higher depreciation expense over the remaining life of the machinery compared to the straight-line method used previously. Choices A and B are incorrect because this is not a correction of an error or a change in accounting principle, but rather a change in estimate. Choice D is incorrect because it does not reflect the change in estimate and would result in a lower depreciation expense over the remaining life of the machinery compared to the new estimate.

Hopper Company Acquired Machinery on January 1, 2005 Which It