Question

Baker Industries originally estimated the useful life of one of its buildings to be 50 years. Now, after the building has been depreciated for 30 years, Baker has revised its remaining life to just 10 years. How should Baker's accountant respond to this revision?

A. The accountant should depreciate the building's remaining book value over 20 years.
B. The accountant should depreciate the building's remaining book value over 10 years.
C. The accountant should adjust the building's accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.
D. The accountant should adjust the building's accumulated depreciation to its appropriate balance, through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

Answer 1

The accountant should adjust the building's accumulated depreciation and depreciate the adjusted book value over the revised 40-year life. The correct answer is option C. The accountant should adjust the building's accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

Step-by-step explanation:

The correct response for the accountant in this situation would be option C. The accountant should adjust the building's accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. This means that the remaining book value of the building should be adjusted to reflect the revised useful life of 40 years, and then depreciated over the remaining 10 years.

By adjusting the building's accumulated depreciation and depreciating the adjusted book value over the revised 40-year life, the accountant ensures that the depreciation expense accurately represents the building's usage and wear over time. This accounting treatment aligns with the principle of matching expenses with revenue, as the revised estimated useful life reflects the updated expectations of the building's future value to the company.

Overall, the accountant's response should take into account the revised useful life to accurately present the building's value and usage in the financial statements. Option C is the most appropriate choice in this scenario.