Grant Company Has Decided to Change the Estimate of the Useful

question 105

Multiple Choice

Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?

• A) Revisions in useful life are permitted if approved by the IRS.
• B) Retroactive changes must be made to correct previously recorded depreciation.
• C) Only future years will be affected by the revision.
• D) Both current and future years will be affected by the revision.

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Definitions:

Mixed Costs

Expenses that have both fixed and variable components, changing in total with activity level but not directly proportional.

Variable Costs

Variable costs are expenses that change in proportion to the activity or volume of a business, such as raw materials and labor costs that vary with production levels.

Contribution Margin

Contribution margin represents the difference between sales revenue and variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Sales Revenue

The total amount of money generated from the sale of goods or services before any costs or expenses are deducted.