Which of the following statements is correct?

Question

Quizplus · Accepted Answer

A change in method of accounting for depreciation should cause an adjustment to current year's depreciation expense and a cumulative effect for the effect of the change on prior year's earnings. This is in accordance with accounting principles and guidelines as set by generally accepted accounting principles (GAAP). Option A is incorrect as a change in estimated useful life should not affect prior years' retained earnings. Option C is incorrect as an error affecting prior year's depreciation is not a change in estimate. Option D is incorrect as a cumulative effect can be accompanied by a related tax effect, depending on the accounting method used for taxes.

Which of the Following Statements Is Correct