Exam 22: Accounting Changes and Error Analysis

On January 1, 2012, Lake Co. purchased a machine for $1,320,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2015, Lake determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $120,000. An accounting change was made in 2015 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2015 of

Use the following information for questions 53 and 54. Swift Company purchased a machine on January 1, 2012, for $600,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2015, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made in 2015 to reflect this additional information. -Assume that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate was 30% in 2012, 2013, 2014, and 2015. What should be reported in Swift's income statement for the year ended December 31, 2015, as the cumulative effect on prior years of changing the estimated useful life of the machine?

On December 31, 2015, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2015 balance sheet?