Question

The Typhoon Company uses straight-line depreciation. It lowers an estimated salvage value, resulting in a depreciation expense higher than previous year amounts. In addition to the recording of depreciation for the current year

1. a) A restatement of financial statements and a credit to Accumulated Depreciation

2. b) A restatement of financial statements and a debit to Accumulated Depreciation

3. c) No restatement of financial statements and a credit to Accumulated Depreciation

4. d) No restatement of financial statements and a debit to Accumulated Depreciation

5. e) No restatement of financial statements and a no entry to Accumulated Depreciation

is it the changing in accounting estimate? or change due to an accounting error?

to the changing accounting estimate, do we need to A restatement of financial statements and journal entry

to change due to an accounting error, do we need to A restatement of financial statements and journal entry

how to represent the current and the previous year?

Answer 1

Answer is e) No restatement of financial statements and a no entry to Accumulated Depreciation.

Explanation:

Under Straight-line method, If the company lowers the estimated scrap value, then the depreciation expense will be higher than the previous year amounts.

"For example:

Cost of the asset is $10,000, useful life is 10 Years and Estimated scrap value is $2,000; Depreciation expense = (10,000-2,000)/10 = $8,000. If Estimated scrap value is lowers to $1,000, then the depreciation expense = (10,000-1,000)/10 = $9,000. It is increased by $1,000 because of change in estimation."

Entry for the current year depreciation expense is Debit Depreciation expense and Credit Accumulated depreciation. There is no need of restatement of financial statements and No additional entry is required because this is a change in accounting estimate not an error.

Is it the changing in accounting estimate? or change due to an accounting error?

Yes, it is changing in accounting estimate. Change not due to accounting error.

To the changing accounting estimate, do we need to A restatement of financial statements and journal entry?

No Restatement of financial statements and additional journal entry

To change due to an accounting error, do we need to A restatement of financial statements and journal entry?

Yes, If change due to an accounting error, then we need to a restatement of financial statements and rectification journal entry.

how to represent the current and the previous year?

By Adjusting the carrying amounts of the previous year and Adjusting the Retained earnings balance.