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)].

User Contributed Comments 3

User Comment
achu REDUCING current year depreciation will INCREASE net income.
surjoy Also, accounting changes are added net of Tax and hence multiply by 0.66?
Andrewua Accounting change should be reported in both balance and income statement. So we gonna reduce accumulated depreciation and rise income...
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