Thomas Company acquired machinery on January 2, 2016, which it depreciated under the straight-line method with...

Thomas Company acquired machinery on January 2, 2016, which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2020, Thomas estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Thomas?

Group of answer choices

by continuing to depreciate the machinery over the original fifteen year life

as a prior period adjustment

as a change in accounting principle in 2020

by setting future annual depreciation equal to one-sixth of the machinery’s book value on January 1, 2020

Expert Solution

Thomas Company acquired machinery on January 2, 2016, which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2020, Thomas estimated that the remaining life of this machinery was six years with no salvage value. This change should be accounted for by Thomas by setting future annual depreciation equal to one-sixth of the machinery’s book value on January 1, 2020.

Since the machinery has now only 6 years of useful life remaining , thus the book value of machinery at the revision date i.e January 1, 2020 will be depreciated over the remaining useful life of 6 years.

It is not a case of prior period adjustment or a change in accounting principal.

Last option is correct.

ekkarill92 answered 2 years ago

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