Belle Co. determined after four years that the estimated useful life of its labeling machine should be 10 years rather than 12 years. The machine originally cost $46,000 and had an estimated salvage value of $1,000. Belle uses straight-line depreciation. What amount should Belle report as depreciation expense for the current year?
Answer(s): D
Choice "d" is correct. A change in estimated useful life is a change in accounting estimate, and is therefore accounted for prospectively. The revised useful life should be used as of the beginning of the year of the change and should be applied to the current book value of the fixed asset. The first step in determining the depreciation expense in the year of the change in estimate is to determine the book value of the labeling machine at the time of the change:Original cost $46,000- Accumulated depreciation 15,000 = [(46,000 - 1,000) / 12] *4 Current book value $31,000This book value is then depreciated over the remaining life of the fixed asset based on the new estimated life. In this problem, the new estimated life is 10 years, four of which have already passed, so the asset must be depreciated over the remaining 6 years:($31,000 - 1,000) / 6 = $5,000Choice "a" is incorrect. This answer is incorrectly calculated by adding the salvage value to the current book value, and by using the entire 10 year revised estimated life. Salvage value should always be subtracted and the asset should only be depreciated over the remaining life of the asset. Choice "b" is incorrect. This is the annual depreciation before the change in estimated life ($46,000 - $1,000) / 12 = $3,750]. The depreciation after the change in estimate should be calculated as described above.Choice "c" is incorrect. This would have been the annual straight-line depreciation if the original useful life of the asset had been 10 years rather than 12 years. The change in estimated life is applied prospectively, as described above, not retrospectively.Comprehensive Income
Rock Co.'s financial statements had the following balances at December 31:What amount should Rock report as comprehensive income for the year ended December 31?
Answer(s): C
Choice "c" is correct. Comprehensive Income includes all items included in "Net Income" plus "Other Comprehensive Income" items. Since the $50,000 extraordinary gain is already included in Net Income, Comprehensive Income is:
According to the FASB conceptual framework, comprehensive income includes which of the following?
Answer(s): B
Choice "b" is correct. Comprehensive income is the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity except those resulting from investments by owners and distributions to owners.SFAC 6 para 70.
Which of the following describes how comprehensive income should be reported?
Choice "c" is correct.Comprehensive income must be presented in one of three formats:1. In a combined statement of income and comprehensive income;2. In a separate statement of comprehensive income that begins with net income; or3. In a statement of changes in equity.Choices "a", "b", and "d" are incorrect, per the above.Balance Sheet and Disclosures Overview
What is the purpose of information presented in notes to the financial statements?
Answer(s): A
Choice "a" is correct. Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles. SFAC 5 para. 7
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