CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Vince Inc. changed from the double-declining balance to the straight-line method of depreciation during 20x3. Total depreciation expense for previous years under the double-declining balance method totaled \$29,000. Vince Inc. calculated that if the straight-line method had been used, depreciation would have totaled \$17,000. Vince Inc. is taxed at a rate of 34 percent. What is the cumulative effect of the accounting change that should be reported on Vince's income statement for the year ended 20x3?
A. \$7,920
B. \$12,000
C. (\$12,000)
Explanation: If the new accounting method (straight-line) had been used in previous years, Vince's total depreciation expense would have been \$12,000 lower (\$29,000 - \$17,000) and income before income taxes would have been \$12,000 higher. Therefore, the cumulative effect of the accounting change that should be reported on Vince's year-end income statement for 20x3 is a positive \$7,920 [\$12,000 x (1 - 0.34)].