The Max Company Began Its Operations on January 1, 2016

question 125

Multiple Choice

The Max Company began its operations on January 1, 2016, and used an accelerated method of depreciation for its machinery and equipment. On January 1, 2018, Max adopted the straight-line method of depreciation. The following information is available regarding depreciation expense for each method: $$\begin{array} { l r r } \text { Year } & \begin{array} { r } \text { Accelerated } \\\text { Depreciation }\end{array} & \begin{array} { r } \text { Straight-line } \\\text { Depreciation }\end{array} \\\hline2016 & \$ 175,000 & \$ 150,000 \\2017 & 200,000 & 180,000 \\2018 & 245,000 & 230,000\end{array}$$ What is the before-tax cumulative effect on prior years' income that would be reported as of January 1, 2018, due to changing to a different depreciation method?

• A) $0
• B) a decrease of $45,000
• C) an increase of $45,000
• D) an increase of $60,000

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Definitions:

Government Contracts

Agreements entered into between a private party and a government agency wherein the private party agrees to provide goods or services in exchange for compensation, subject to specific regulatory requirements and oversight.

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