Question

Fickle Company purchased a machine at a total cost of $220,000 (no residual value) at the beginning of 2018. The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2021, it was decided to change to straight-line. An accompanying disclosure note would include each of the following except: Multiple Choice The cumulative effect of the change. Justification that the change is preferable. The effect of a change on per share amounts affected for all periods reported. The effect of a change on any financial statement line items affected for all periods reported.

Answer 1

Fickle Company

An accompanying disclosure note would include each of the following except:

The effect of a change on per share amounts affected for all periods reported.

Step-by-step explanation:

a) Data and Analysis:

Total cost of machine = $220,000

Useful life of machine = 10 years

Method of depreciation = the sum-of-the-years'-digits method

b) The sum-of-the-years'-digits method of depreciation adds up the years (e.g. 10, 9, 8, 7, 6, 5, 4, 3, 2, 1) to obtain 55 as the sum-of-the-years'-digits denominator. Each year's depreciation is then based on the number of years remaining. For example, the depreciation expense for year 1 will be $40,000 (10/55 * $220,000).

In disclosing this change in accounting method, that is, from the sum-of-the-years'-digits method to the straight-line method of depreciation, Fickle does not need to disclose the effect of the change on per share basis.