When a firm decided to change its method of depreciation from the straight-line method to an accelerated method, in Year 8, it discovered that the effect of the change on total depreciation expense for all years affected was as follows. For all years prior to year 8, the depreciation was $50,000 in total. For year 8 only, the depreciation increased by $11,000. Ignoring taxes, Year 8 income is decreased by what amount, and in what classification, as a result of the accounting change? $$\begin{array} { | l | l |l | }
\hline& \text { Income from continuing operations } & \text { Net income } \
\hline 1& \$ 11,000 & \$ 0 \
\hline 2& \$ 11,000 & \$ 11,000 \
\hline 3& \$ 61,000 & \$ 0 \
\hline 4 &\$ 0 & \$ 51,000 \
\hline
\end{array}$$
A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Question

When a firm decided to change its method of depreciation from the straight-line method to an accelerated method, in Year 8, it discovered that the effect of the change on total depreciation expense for all years affected was as follows. For all years prior to year 8, the depreciation was $50,000 in total. For year 8 only, the depreciation increased by $11,000. Ignoring taxes, Year 8 income is decreased by what amount, and in what classification, as a result of the accounting change? $$\begin{array} { | l | l |l |  } 
\hline& \text { Income from continuing operations } & \text { Net income } \
\hline 1& \$ 11,000 & \$ 0 \
\hline 2& \$ 11,000 & \$ 11,000 \
\hline 3& \$ 61,000 & \$ 0 \
\hline 4 &\$ 0 & \$ 51,000 \
\hline
\end{array}$$
A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Quizplus · Accepted Answer

Since the change in accounting method only affects Year 8, the decrease in income only occurs in that year. Since the depreciation expense increased by $11,000, Year 8 income is decreased by the same amount, resulting in a decrease in the operating income classification (i.e. it is not a result of any financing or investing activities). Therefore, the correct choice is B.

When a Firm Decided to Change Its Method of Depreciation