Elder Corporation Decided to Change Its Depreciation Policy by (1)changing

question 71

Multiple Choice

Elder Corporation decided to change its depreciation policy by (1) changing from double-declining-balance depreciation,and (2) changing the estimated useful life on all automobiles used in the business from five years to four years. Which of the following is correct concerning these two changes?

• A) Both are changes in accounting principle.
• B) Both are changes in accounting estimate.
• C) One is an error correction,and one is change in accounting principle.
• D) One is a change in estimate effected through a change in accounting principle,and one is a change in estimate.

---

Definitions:

EPS

Earnings Per Share – a company's profit divided by the outstanding shares of its common stock, providing an indicator of the company's profitability.

Degree Of Total Leverage

A ratio that measures the sensitivity of a company's earnings per share to fluctuations in its operating income due to changes in its capital structure.

Financial Leverage

The use of borrowed funds to increase an investment's potential return, which also increases the risk of loss.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in its revenue, indicating the proportion of fixed versus variable costs.