Question 2. Computing the effect of a change in useful life and residual value on financial statements (straight-line depreciation). Burbank Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows: Cost when acquired 330,000 Accumulated depreciation 78,000 Depreciation expense is based on straight-line depreciation, an estimated useful life of 50 years, and a $30,000 residual value. During January of this year, on the basis of a careful study, management decided that the total estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced to $22,500 (from $30,000). The depreciation method will not change, i.e. they will keep using straight-line deprecation. a. Compute the annual depreciation expense prior to the change in estimates. b. How many years had the company depreciated the building prior to the change in estimates? c. Under the new depreciation method, how many years are remaining for depreciation? Hint: Difference between estimated useful life and number of years that have already passed. d. What is your new depreciable amount after the change in estimates? Hint: Depreciable amount= NBV at the beginning of the year – residual value e. Compute the annual depreciation expense after the change in estimates. Hint: Take the information obtained from b and c. f. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year? Ignore taxes!
Question 2. Computing the effect of a change in useful life and residual value on financial statements (straight-line depreciation). Burbank Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows: Cost when acquired 330,000 Accumulated depreciation 78,000 Depreciation expense is based on straight-line depreciation, an estimated useful life of 50 years, and a $30,000 residual value. During January of this year, on the basis of a careful study, management decided that the total estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced to $22,500 (from $30,000). The depreciation method will not change, i.e. they will keep using straight-line deprecation. a. Compute the annual depreciation expense prior to the change in estimates. b. How many years had the company depreciated the building prior to the change in estimates? c. Under the new depreciation method, how many years are remaining for depreciation? Hint: Difference between estimated useful life and number of years that have already passed. d. What is your new depreciable amount after the change in estimates? Hint: Depreciable amount= NBV at the beginning of the year – residual value e. Compute the annual depreciation expense after the change in estimates. Hint: Take the information obtained from b and c. f. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year? Ignore taxes!
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter9: Long-term Assets: Fixed And Intangible
Section: Chapter Questions
Problem 1TIF: Revising depreciation estimates Hard Bodies Co. is a fitness chain that has just completed its...
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please answer the question d e f , i have some concern with d,e,f. thank you.
Transcribed Image Text:Question 2. Computing the effect of a change in useful life and residual value on financial
statements (straight-line depreciation).
Burbank Company owns the building occupied by its administrative office. The office building
was reflected in the accounts at the end of last year as follows:
Cost when acquired 330,000
Accumulated depreciation 78,000
Depreciation expense is based on straight-line depreciation, an estimated useful life of 50 years,
and a $30,000 residual value.
During January of this year, on the basis of a careful study, management decided that the total
estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced
to $22,500 (from $30,000). The depreciation method will not change, i.e. they will keep using
straight-line deprecation.
a. Compute the annual depreciation expense prior to the change in estimates.
b. How many years had the company depreciated the building prior to the change in
estimates?
c. Under the new depreciation method, how many years are remaining for depreciation?
Hint: Difference between estimated useful life and number of years that have already
passed.
d. What is your new depreciable amount after the change in estimates?
Hint: Depreciable amount= NBV at the beginning of the year – residual value
e. Compute the annual depreciation expense after the change in estimates. Hint: Take the
information obtained from b and c.
f. What will be the net effect of changing estimates on the balance sheet, net income, and
cash flows for the year? Ignore taxes!
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