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    Depreciation on Company Machinery

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    Quayle Company acquired machinery on January 1, 1999 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2004, Quayle estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Quayle?

    A. As a prior period adjustment.
    B. As the cumulative effect of a change in accounting principle in 2004.
    C. By setting future annual depreciation equal to one-sixth of the book value on January 1, 2004.
    D. By continuing to depreciate the machinery over the original fifteen year life.

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    Solution Preview

    The correct answer is (c)

    According to Intermediate Accounting 12th Edition Volume 1 by Kieso, Weygandt, and Warfield. Page 533
    "[Companies] should report this change in estimate in the current and prospective periods. It should not make ...

    Solution Summary

    This response looks at the depreciation for company machinery.