Gory Company acquired some machinery on January 2, year 2. Gory was using straight-line depreciation with an estimated life of 15 years with no salvage value for this machinery. On January 2, year 6, Gory estimated that the remaining life of this machinery was 6 years with no salvage value. How should this change be accounted for by Gory?
A. Revising future depreciation per year to equal the original cost divided by 6.
B. Making a prior period adjustment and changing to an accelerated depreciation method that will compensate for under-depreciation in prior years.
C. Estimating the effect of the change on each year’s net earnings, but maintaining the method of depreciation as originally determined.
D. Revising future depreciation per year to equal the book value on January 2, year 6, divided by 6.
Answer:D
D is corrent. Cory Company’s change of depreciation is considered a change in estimate. A change in estimate is treated prospectively by revising the remaining years’ depreciation expense. Book value of the asset at the time of change should be divided by 6, the estimated remaining life.
