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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

ekkarill92 answered 3 years ago
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