When a Change in Depreciation Method Occurs

question 86

Multiple Choice

When a change in depreciation method occurs

• A)prior years' financial statements should be changed to reflect the newly adopted method.
• B)the change should be reported in current and future years.
• C)the cumulative effect of the change should be reflected on the income statement as of the beginning of the next year.
• D)the cumulative effect of the change in accounting principle should be classified as a discontinued operation on the income statement.

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Definitions:

Market Price

The existing cost for purchasing or selling an asset or service on the open market.

Purely Competitive Market

A market structure characterized by many buyers and sellers, all of whom sell identical products, which results in the agents having no control over prices.

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs.

Average Fixed Cost

Production costs that stay unchanged with output levels, split by the amount of produced output.