A Company Acquired a Machine for Use in a Business

question 77

Essay

A company acquired a machine for use in a business at the beginning of year 1: Cost, $110,000; Estimated life, 10 years; no residual value (straight-line depreciation).
Required:
Two separate and independent cases, involving accounting changes with respect to the machine are given below. For each case, respond to the following questions:
(1) What type of change is involved, if any?
(2) Give the entry to reflect the change. If none is required, give the reason. Ignore any tax effect.
(3) Give the entry for depreciation in year 5.
CASE A At the end of the 5^th year, it was discovered that no depreciation had ever been recorded:
(1) Type of change: ____________________________________________.
(2) Correcting entry:
(3) Adjusting entry, depreciation:
CASE B Assume depreciation has been recorded in the usual manner during the first four years. At the end of the 5^th year, the estimated total life was changed from 10 to 15 years.
(1) Type of change: ____________________________________________.
(2) Correcting entry:
(3) Adjusting entry, depreciation:

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Definitions:

Pure Nondiscriminating Monopolist

A monopolist who charges all consumers the same price for a good or service, regardless of the quantity purchased or consumer preferences.

Pure Competitor

A firm in a purely competitive market that sells products identical to those of other firms, making it a price taker with no control over market price.

Pure Monopoly

A market structure where a single seller controls the entire supply of a product or service, with no close substitutes, leading to significant market power.

Profit-Maximizing Price

The price at which a company can sell its product or service to achieve the highest possible profit.