MULTIPLE-CHOICE QUESTIONS (1-17)
On January 1, 2008, Bray Company purchased for 240,000 a machine with a useful life of ten years and no salvage value. The
machine was depreciated by the double declining balance method and the carrying amount of the machine was 153,600 on December
31, 2009. Bray changed retroactively to the straight-line method on January 1, 2010. Bray can justify the change. What should be the
depreciation expense on this machine for the year ended December 31, 2010?
Items 2 and 3
are based on the following:
On January 1, 2008, Warren Co. purchased a 600,000 machine, with a five-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, 2009.
On January 1, 2010, Warren changed retroactively to the straight-line method for financial statement purposes. Warren can justify the
change. Warren’s income tax rate is 30%.
In its 2010 income statement, what amount should Warren report as the cumulative effect of this change?
On January 1, 2010, what amount should Warren report as deferred income tax liability as a result of the change?