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Straight Line Deprecation and Double Declining Depreciation

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QUESTION ONE -
On January 1, 2008, Nobel Corporation acquired machinery at a cost of $600,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2011, a decision was made to change to the double-declining balance method of depreciation for this machine.

A. ASSUMING A 30% TAX RATE, THE CUMULATIVE EFFECT OF THIS ACCOUNTING CHANGE ON BEGINNING RETAINED EARNINGS, IS??

B. THE AMOUNT THAT NOBEL SHOULD RECORD AS DECPRECIATION EXPENSE FOR 2011 IS?

QUESTION TWO:
Ernst Company purchased equipment that cost $750,000 on January 1, 2010. The entire cost was recorded as an expense. The equipment had a nine-year life and a $30,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2012. Ernst is subject to a 40 % tax rate.

Before the correction was made and before the books were closed on December 31, 2012, retained earnings was understated by
a. $332,000.
b. $336,000.
c. $354,000.
d. $450,000.

QUESTION THREE:
On January 1, 2008, Lake Co. purchased a machine for $792,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2011, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $72,000. An accounting change was made in 2011 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2011 of
a. $438,000.
b. $462,000.
c. $480,000.
d. $528,000

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Solution Summary

Utilizing the Straight Line Depreciation Method to determine the yearly Depreciation expense. Also, the impact of switching from the Straight Line Depreciation to the Double Declining Depreciation Method and the adjustment to Retained Earnings. Finally, the impact of switching from the Depreciation as a Expense to a Straight Line Depreciation and the adjustment to Retained Earnings.

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