When the Estimate of an Asset's Useful Life Is Changed

question 4

Multiple Choice

When the estimate of an asset's useful life is changed,

• A) depreciation expense for all past periods must be recalculated.
• B) there is no change in the amount of depreciation expense recorded for future years.
• C) only the depreciation expense in the remaining years is changed.
• D) None of these are true.

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Definitions:

Effective Annual Rate

The annualized rate of interest on a loan or financial product, adjusted for the effects of compounding.

Continuous Compounding

A mathematical approach where interest earnings are immediately reinvested to generate additional earnings continuously.

Stated Rate

The annual interest rate stated on a financial instrument, such as a loan or bond, not adjusting for compounding or fees.

Interest-Only Loan

A loan where the borrower is required to pay only the interest on the principal balance for a set period of time.