1106 Scenarlo A: After 2 years of using the equipment, the company estimates that the residual value is likely only going to be $1,000. Scenario B: The company capitalizes the item, and then amortizes it over 6 years, but forgets to deduct the residual value when calculating the depreciation. Scenarlo C: After 2 years of using the equipment, the company decides to switch to the double declining balance method to depreciate the asset. Scenario D: The company expenses the item in the year of purchase. Scenario E: At the end of second year, the company determines they will likely only be able to use the asset for 1 more year.
1106 Scenarlo A: After 2 years of using the equipment, the company estimates that the residual value is likely only going to be $1,000. Scenario B: The company capitalizes the item, and then amortizes it over 6 years, but forgets to deduct the residual value when calculating the depreciation. Scenarlo C: After 2 years of using the equipment, the company decides to switch to the double declining balance method to depreciate the asset. Scenario D: The company expenses the item in the year of purchase. Scenario E: At the end of second year, the company determines they will likely only be able to use the asset for 1 more year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
weat
Subject-Accounting
Transcribed Image Text:A company has purchased a plece of equipment for $50,000. The equipment has a 5-year useful life and $5,000 residual value.
Consider the following Independent scenarios:
Scenario A: After 2 years of using the equipment, the company estimates that the residual value is likely only going to be $1,000.
Scenario B: The company capitalizes the tem, and then amortizes it over 6 years, but for gets to deduct the residual value when
calculating the depredation.
Scenario C: After 2 years of using the equipment, the company decides to switch to the double declining balance method to
depredate the asset.
Scenario D: The company expenses the item in the year of purchase.
Scenario E: At the end of second year, the company determines they will likely only be able to use the asset for 1 more year.
Required:
Identify whether this is a change in accounting policy, estimate or an error. Determine whether retrospective or prospective treatment
is required.
Scenario A
Scenario B
Scenano C
Scenario D
Scenario E
Change in estimate,
accounting error or change
in policy?
Prospective or retrospective
application?
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