LO 3 (Learning Objective 3: Determine the effect on net income of a change in the depreciation method) Borzani Corporation reported net income of $52 million for 2018. Depreciation expense for the year totaled $18 million. Borzani depreciates plant assets over eight years using the straight-line method with residual values of zero. Borzani paid $144 million for plant assets at the beginning of 2018. At the start of 2019, the company changed its method of accounting for depreciation to the double-declining-balance method. The year 2019 is expected to be the same as 2018, except for the change in depreciation method. If Borzani had been using the double-declining-balance method of depreciation all along, how much net income could the company expect to earn during 2019? Ignore income taxes.
LO 3 (Learning Objective 3: Determine the effect on net income of a change in the depreciation method) Borzani Corporation reported net income of $52 million for 2018. Depreciation expense for the year totaled $18 million. Borzani depreciates plant assets over eight years using the straight-line method with residual values of zero. Borzani paid $144 million for plant assets at the beginning of 2018. At the start of 2019, the company changed its method of accounting for depreciation to the double-declining-balance method. The year 2019 is expected to be the same as 2018, except for the change in depreciation method. If Borzani had been using the double-declining-balance method of depreciation all along, how much net income could the company expect to earn during 2019? Ignore income taxes.
Solution Summary: The author explains the double-declining-balance method of depreciation, wherein the book value of the long-term asset is decreased by a fixed rate.
(Learning Objective 3: Determine the effect on net income of a change in the depreciation method) Borzani Corporation reported net income of $52 million for 2018. Depreciation expense for the year totaled $18 million. Borzani depreciates plant assets over eight years using the straight-line method with residual values of zero.
Borzani paid $144 million for plant assets at the beginning of 2018. At the start of 2019, the company changed its method of accounting for depreciation to the double-declining-balance method. The year 2019 is expected to be the same as 2018, except for the change in depreciation method. If Borzani had been using the double-declining-balance method of depreciation all along, how much net income could the company expect to earn during 2019? Ignore income taxes.
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