On January 1, 2015, Rabbit Corp

question 40

Multiple Choice

On January 1, 2015, Rabbit Corp. acquired machinery that it depreciated using the straight-line method with an estimated useful life of 15 years and no residual value. On January 1, 2020, Rabbit estimated that the remaining life of this machinery was six years with no residual value. This change should be accounted for

• A) as a prior period adjustment.
• B) as the cumulative effect of a change in accounting principle in 2020.
• C) by setting future annual depreciation equal to one-sixth of the book value on January 1, 2020.
• D) by continuing to depreciate the machinery over the original 15-year life.

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Definitions:

Sustainable Cash Flows

Cash flows that are expected to continue at a certain level in the future without significantly depleting the resources generating them.

Reported Earnings

The income figure publicly announced by a company, typically on a quarterly or annual basis, reflecting financial performance.

Rational And Efficient

A decision-making process or system operating in a way that achieves the desired outcome with the least waste of time or resources.

Earnings Release

An earnings release is a public statement issued by a company disclosing its financial performance for a specified period, including revenues, expenses, and net income.