Answer:
Yukelson Company
1. The annual depreciation expense prior to the change in estimates is:
= $7,500.
2. The annual depreciation expense after the change in estimates is:
= $13,000.
3. The net effect of changing estimates on the balance sheet, net income, and cash flows for the year:
Balance Sheet:
The accumulated depreciation will increase by $5,500, thus reducing the net book value of the building.
Net Income:
The net income will be reduced by $5,500.
Cash Flows:
No effect on cash flows because depreciation is not a cash flow item. The only adjustment will be when the net income is used to compute the cash flows.
Step-by-step explanation:
a) Data and Calculations:
Cost Building = $412,500
Estimated residual value = $37,500
Estimated useful life = 50 years
Accumulated depreciation = $60,000
Depreciable amount = $375,000 ($412,500 - $37,500)
Annual depreciation expense = $7,500 ($375,000/50)
Revised residual value = $22,500
Revised useful life = 30 years
Depreciable amount = $390,000 ($412,500 - $22,500)
Annual depreciation expense = $13,000 ($390,000/30)