Question

On July 8, 2017, Lindy’s, Inc. purchased a service vehicle for $53,000. The estimated useful life was 5 years; $20,000 residual value. The company uses the straight-line method of depreciation; full month convention. On January 21, 2019, Lindy’s had storage and shelving units permanently installed in the vehicle, increasing the type of jobs that Lindy’s personnel could handle at remote job sites. The cost of the upgrade was $15,015. The upgrade was not expected to extend the life of the vehicle. In December 2020, the service manager revised the estimate of the life and residual value of the vehicle to 7 years; $10,000, respectively. Which of the following is(are) true about Lindy’s financial statement disclosure requirements for 2021?

Select one:

a. No special disclosures are required. This is a change in estimate made in the ordinary course of business.

b. Lindy’s would need to disclose the new depreciation amount for the asset and the reason for the change in estimated life and residual value.

c. Lindy’s would need to disclose the effect of the change in life and residual value on depreciation expense in 2021, if the amount is material.

d. Lindy’s would need to disclose the effect of the change in life and residual value on related per-share amounts, if material.

e. B and D

f. C and D

g. B and C

Answer 1

The correct answer is option G: "B and C."

Lindy's, Inc. would need to disclose the new depreciation amount for the asset and the reason for the change in estimated life and residual value (Option B). This is because a change in depreciation estimates, especially if material, should be disclosed in the financial statements.

Additionally, Lindy's would need to disclose the effect of the change in life and residual value on depreciation expense in 2021 if the amount is material (Option C). This disclosure helps provide transparency about the impact of the change in estimates on the company's financial results.

Option D is not relevant in this context as it refers to per-share amounts, which are typically disclosed in the context of stock splits or stock dividends and not related to changes in depreciation estimates.