On January 1, 1986, the Jett Company purchased a major item of machinery for use in its operations. The machine cost \(\$ 650,000\) and was expected to have a salvage value of \(\$ 50,000\). Depreciation was taken through 1989 on a decliningbalance method at twice the straight-line rate assuming an eight-year life. Early in 1990, the company concluded that given the economic conditions in the industry, a straight-line method would result in more meaningful financial statements. They argue that straight-line depreciation would allow better comparisons with the financial results of other firms in the industry.

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1. Is Jett Company allowed to change depreciation methods in 1990 ?

2. Prepare a table that shows the depreciation expense to be reported each year of the asset's life under both depreciation methods and the cumulative effect of the change on prior years' incomes. Assume an income tax rate of \(40 \%\), and round your answers to the nearest whole dollar.

3. State the amount of depreciation expense to be reported in 1990 and the cumulative effect of the change on prior years' incomes. How should the cumulative effect be reported? Does the cumulative effect increase or decrease net income?

4. Now assume that Jett Company had used straight-line depreciation through 1989 and justified a change to declining-balance depreciation in 1990. What amount of depreciation expense should be reported in 1990? How does the reporting of the cumulative effect of the change differ from your answer to requirement 3 ?