Conn Co. bought a machine on January 1, Year 1, for $24,000, at which time it ha
ID: 2477836 • Letter: C
Question
Conn Co. bought a machine on January 1, Year 1, for $24,000, at which time it had an estimated useful life of 8 years, with no residual value. Straight-line depreciation is used for all of Conn's depreciable assets. On January 1, Year 3, the machine's estimated useful life was determined to be only 6 years from the acquisition date. Accordingly, the appropriate accounting change was made in Year 3. The direct effects of this change were limited to the effect on the depreciation and the related provision for income tax. Conn's income tax rate was 40% in all the affect years. In Conn's Year 3 financial statements, how much should be reported as the cumulative effect on prior years because of the change in the estimated useful life of the machine?
$0
$1,200
$2,000
$2,700
Explanation / Answer
$0 should be reported as the cumulative effect on prior years because of the change in the estimated useful life of the machine, as no cumulative effect beacuse handle prospectively.