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A company purchased a piece of equipment for $40,000 on January 1, 2018. At that time...
A company purchased a piece of equipment for $40,000 on January 1, 2018. At that time the company estimated the equipment would have a 6-year useful life and no salvage value. The company used straight-line depreciation based on this information used through 2019. On December 31, 2020, the company determined the equipment instead has a 9-year useful life, with no salvage value. The company's tax rate has been 20% since 2015. What is the necessary adjustment to beginning retained earnings in 2020 for this change?
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Expert Solution
| Jan 01 2018 | Asset | 40000 | 2020 Op.Balance | 26666 | |
| Life | 6 Years | Revised Life Span | 9 Years | ||
| Salvage Value | Nil | Salvage Value | Nil | ||
| Straight Line Dep | Op.Balance of Asset-Revised Residual Value/Remaining Life Span of Asset | ||||
| Reamining Life Span | 7 Years | ||||
| Straight Line Dep | 6666.667 | Revised Monthly Depreciateion | 3809.429 | ||
| Machinery | Dep | Cl.Balance | |||
| 2018 | 40000 | 6667 | 33333 | ||
| 2019 | 33333 | 6667 | 26666 | ||
| 2020 | 26666 | 3809 | 22857 | ||
| 2021 | 22857 | 3809 | 19048 | ||
| 2022 | 19048 | 3809 | 15239 | ||
| 2023 | 15239 | 3809 | 11430 | ||
| 2024 | 11430 | 3809 | 7621 | ||
| 2025 | 7621 | 3809 | 3812 | ||
| 2026 | 3812 | 3809 | 3 | ||
| B) | Due to to the revised computaion the reatined earnings for Year 2020 could Increase by an Amount 2858 | ||||
| where as previous depreciation was 6667 now it reduced to 3809 | |||||
| and need to pay tax on 2858 @20% | |||||
| Equals to 571.6 |
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