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A construction company, Caterpillar Inc., has the following information for the year ended December 31, 2023: Property, plant, and equipment (PPE) cost: $8,000,000 Accumulated depreciation:

A construction company, Caterpillar Inc., has the following information for the year ended December 31, 2023:

  • Property, plant, and equipment (PPE) cost: $8,000,000
  • Accumulated depreciation: $3,200,000
  • Estimated salvage value: $600,000
  • Remaining useful life: 6 years
  • Annual depreciation expense: $800,000
  • Calculate the book value of PPE.
  • Determine the new depreciation expense if the estimated useful life is reduced to 5 years.
  • How would the financial statements be affected by this change in estimate?
  • Discuss the importance of the Conservatism Principle in depreciation.
  • How should the company record the change in depreciation expense?

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