Exhibit 22-3 Katrina Company acquired a truck on January 1, 2014, for $140,000. The truck had an estimated useful life of five years with no salvage value. Katrina used straight-line depreciation for the truck. On January 1, 2015, Katrina revises the estimated useful life of the truck. Katrina made the accounting change in 2015 to reflect the extended useful life.

-Refer to Exhibit 22-3. If the revised estimated useful life of the truck is a total of seven years, and assuming an income tax rate of 35%, Katrina should report in its 2015 income statement an effect on prior years of changing the useful life of the truck of

Question

Exhibit 22-3 Katrina Company acquired a truck on January 1, 2014, for $140,000. The truck had an estimated useful life of five years with no salvage value. Katrina used straight-line depreciation for the truck. On January 1, 2015, Katrina revises the estimated useful life of the truck. Katrina made the accounting change in 2015 to reflect the extended useful life.

-Refer to Exhibit 22-3. If the revised estimated useful life of the truck is a total of seven years, and assuming an income tax rate of 35%, Katrina should report in its 2015 income statement an effect on prior years of changing the useful life of the truck of

Quizplus · Accepted Answer

Changes in estimates, such as the useful life of an asset, are accounted for prospectively. Therefore, there is no effect on prior years, and the impact is only on future depreciation expense.

Exhibit 22-3 Katrina Company Acquired a Truck on January 1