Question

On January 1, 2010, Nobel Corporation acquired machinery at a cost of $800,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2013, a decision was made to change to the double-declining balance method of depreciation for this machi Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is

a. $89,600.
b. $0.
c. $105,280.
d. $150,400.

48. The amount that Nobel should record as depreciation expense for 2013 is
a. $80,000.
b. $112,000.
c. $160,000.
d. none of the above.

Answer 1

The cumulative effect of changing the depreciation method on beginning retained earnings is $105,280. The depreciation expense for 2013 is $228,571.43. The correct option is A. $89,600.

Step-by-step explanation:

The cumulative effect of changing the depreciation method on beginning retained earnings can be calculated by finding the difference between the depreciation expense recorded under the straight-line method and the double-declining balance method for the years 2010–2012. The straight-line method recorded a depreciation expense of $80,000 per year from 2010–2012, while the double-declining balance method records a higher depreciation expense for the first year and then decreases each subsequent year.

The depreciation expense for 2013 can be calculated using the double-declining balance method. Since the machine has a remaining useful life of 7 years (10 years minus 3 years), the depreciation expense for 2013 would be ($800,000 / 7) x 2 = $228,571.43.

Therefore, the cumulative effect on beginning retained earnings is ($80,000 x 3) minus $228,571.43 = $105,428.57. The correct answer is c. $105,280.