Question

On January 1, Year 1, Warren Co. purchased a $600,000 machine, with a 5-year useful life and no salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The machine’s carrying amount was $240,000 on December 31, Year 2. On January 1, Year 3, Warren changed to the straight-line method for financial statement purposes only. Warren had planned the change in accordance with a consistently applied policy. Warren’s income tax rate is 30%. In its Year 3 financial statements, what amount should Warren report as the cumulative effect of this change on the beginning balance of retained earnings if it issues single-period statements only?

Answer 1

The correct answer is : (0) Zero

Step-by-step explanation:

A change in depreciation method is a change in method that can not be distinguished. It is accounted for as a change in estimate. The change in mention has to be reported on a prospective basis in the current year and for the coming future years. This change is no longer given as a cumulative effect treatment.