The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. What adjustment is needed for fiscal 2021?

Question

Quizplus · Accepted Answer

The adjustment needed for fiscal 2021 is to correct the depreciation expense to what it would have been under the straight-line method from the beginning. Under the straight-line method, the annual depreciation expense is calculated as (Cost - Residual Value) / Useful Life. For this machine, it would be ($150,000 - $9,000) / 10 = $14,100 per year. Since the double-declining-balance method would have resulted in higher depreciation in the first two years, the adjustment in fiscal 2021 would decrease the accumulated depreciation to match the straight-line method. The exact adjustment amount isn't directly calculable from the given information, but the correct choice is based on understanding the need to adjust towards the straight-line method's lower annual depreciation.

The Method of Depreciation Was Changed from the Double-Declining-Balance Method