A21-8 Change in Estimated Useful Life (LO 21-1, 21-6, 21-8)Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $28,600, waspurchased on 1 January 20X1. It has an estimated residual value of $7,600. On the basis of experience since acquisition, managementhas decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated residual value.The change is to be effective on 1 January 20X5. The 20X5 financial statements are prepared on a comparative basis; 20X4 and 20X5incomes before depreciation were $54,100 and $56,400, respectively. Disregard income tax considerations.Required:1-a. Analyze the effects of the change. (Amounts to be deducted should be indicated by a minus sign.)Analysis:CostAccumulated depreciation to dateResidual valueTo be depreciatedAnnual depreciation (SL):Per yearS20X10S20X50

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Description: A21-8 Change in Estimated Useful Life (LO 21-1, 21-6, 21-8)Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $28,600, waspurchased on 1 January 20X1. It has an estimated residual val

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acey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $28 rchased on 1 January 20X1. It has an estimated residual value of $7,600. On the basis of experience since acquisition, m s decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated resid e change is to be effective on 1 January 20X5. The 20X5 financial statements are prepared on a comparative basis; 20 comes before depreciation were $54,100 and $56,400, respectively. Disregard income tax considerations. quired: Analyze the effects of the change. (Amounts to be deducted should be indicated by a minus sign.) malysis: ost ccumulated depreciation to date esidual value 20X1 20X5

acey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $28 rchased on 1 January 20X1. It has an estimated residual value of $7,600. On the basis of experience since acquisition, m s decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated resid e change is to be effective on 1 January 20X5. The 20X5 financial statements are prepared on a comparative basis; 20 comes before depreciation were $54,100 and $56,400, respectively. Disregard income tax considerations. quired: Analyze the effects of the change. (Amounts to be deducted should be indicated by a minus sign.) malysis: ost ccumulated depreciation to date esidual value 20X1 20X5

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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A21-8 Change in Estimated Useful Life (LO 21-1, 21-6, 21-8)
Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $28,600, was
purchased on 1 January 20X1. It has an estimated residual value of $7,600. On the basis of experience since acquisition, management
has decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated residual value.
The change is to be effective on 1 January 20X5. The 20X5 financial statements are prepared on a comparative basis; 20X4 and 20X5
incomes before depreciation were $54,100 and $56,400, respectively. Disregard income tax considerations.
Required:
1-a. Analyze the effects of the change. (Amounts to be deducted should be indicated by a minus sign.)
Analysis:
Cost
Accumulated depreciation to date
Residual value
To be depreciated
Annual depreciation (SL):
Per year
S
20X1
0
S
20X5
0

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