During 2016, Dragon Company Determined, Based on New Information, That

question 109

Multiple Choice

During 2016, Dragon Company determined, based on new information, that equipment previously depreciated using a ten-year life and a salvage value of $100,000 had a total estimated life of only six years and a salvage value of $50,000. The equipment was acquired on January 1, 2014 at a cost of $600,000, and was depreciated using the straight-line method. Dragon made an accounting change in 2016 to reflect this additional information, and the change was approved by the IRS. Dragon has an income tax rate of 30%. Assuming Dragon's income before depreciation, before income taxes, and before any retroactive effect of the accounting change (if any) for the year ended December 31, 2016, was $180,000, Dragon's net income for 2016 should be

• A) $80,000
• B) $67,500
• C) $56,000
• D) $47,250

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Definitions:

Alternative Use

The potential other applications or purposes for which a resource, asset, or investment could be utilized instead of its current use.

Game

An interactive, often competitive activity involving skill, chance, or endurance on the part of two or more persons who play by a set of rules, usually for entertainment.

Behavioral Science

The study of human and animal behavior through observation and empirical analysis, encompassing fields such as psychology, sociology, and anthropology.

Economic Analysis

The systematic approach to determining the optimum use of scarce resources, involving comparison of two or more alternatives in achieving a specific objective.