Chap020 (accounting) 61 - C Make an adjustment to retained...

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52. Mobic Inc. acquired some manufacturing equipment in January 2008 for $400,000 and depreciated it $40,000 each year for three years on a straight-line basis. During 2011, the manufacturer announced a new technology for this type of equipment that will make the old models obsolete by the end of 2014. As a result, Mobic will plan to replace the equipment at that time, effectively reducing the asset's life from ten to seven years. In its financial statements for 2011, Mobic should: A. Charge $280,000 in depreciation expense. B. Report the book value of the equipment in its12/31/2011 balance sheet at $210,000.
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Unformatted text preview: C. Make an adjustment to retained earnings for the error in measuring depreciation during 2008-2010. D. None of the above is correct. The computation is as follows: Book value at 1/1/2011 = $400,000 (3 x $40,000) = $280,000 Prospective change in depreciation estimate for four remaining years is $280,000/4 = $70,000 per year. AACSB: Analytic Bloom's: Synthesis Learning Objective: 20-04 Explain how and why changes in estimates are reported prospectively. Level of Learning: Hard...
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