Accounting Depreciation Methods Change

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What method did Baden Co. use for financial statement reporting before changing to the straight-line method?

Units of production method

Double-declining balance method

Straight-line method

Sum-of-the-years'-digits depreciation (correct)

How did the change in depreciation method affect Baden Co.'s net income for the year ended December 31, 2008?

Increased net income (correct)

Decreased net income

No effect on net income

Net income was unaffected due to the change being retroactive

What was Waeglein Corporation's depreciation expense for the year 2008 using the sum-of-the-years'-digits method?

$180,000

$210,000

$150,000 (correct)

$105,000

What is the primary reason for Waeglein Corporation changing its depreciation method in 2008?

Waeglein wanted to maximize reported net income Signup and view all the answers

What was Waeglein Corporation's tax rate for the year 2008?

40% Signup and view all the answers

What is the purpose of error analysis in accounting?

To identify and correct errors in financial statements Signup and view all the answers

What was the 2008 depreciation expense for the building?

$328,000 Signup and view all the answers

How many years was the life of the machinery that was depreciated in 2008?

3 years Signup and view all the answers

What error was discovered related to Stevens Co.'s machine in 2008?

Overstated depreciation expense Signup and view all the answers

If the building's cost was $3,500,000 instead of $4,000,000, what would the revised 2008 depreciation expense be?

$275,000 Signup and view all the answers

In the context of the machinery depreciation error, what account should have been debited on the purchase date?

Accumulated Depreciation Signup and view all the answers

If annual straight-line depreciation was used for the building instead of 10%, what would be the revised 2008 depreciation expense?

$328,000 Signup and view all the answers

What is the cumulative effect of changing from double-declining balance to straight-line depreciation on beginning retained earnings, net of tax?

$77,109 Signup and view all the answers

What is the depreciation expense to be recorded for machinery in 2008 after changing from double-declining balance to straight-line depreciation?

$22,857 Signup and view all the answers

Which depreciation method is less likely to result in a material error?

Straight-line method Signup and view all the answers

Which depreciation method results in the highest depreciation expense in the early years of an asset's life?

Double-declining balance method Signup and view all the answers

What is the effect of changing the depreciation method on net income, working capital, and retained earnings?

Net income and retained earnings are decreased, while working capital remains unchanged Signup and view all the answers

Which depreciation method is most appropriate for an asset with a service life that can be measured in units of output?

Units-of-production method Signup and view all the answers