Assume you are the accountant for a small business. Consider the following situation.

On January 2, 2019, the business purchased a large piece of equipment for $410,000. At that time, you used straight line depreciation, with $11,000 salvage value to depreciate the equipment over 7 years. It is now January 2, 2022, you have already recorded depreciation for 2021. You realize that the estimate of useful life that you are using to calculate depreciation is inaccurate. You now estimate that the equipment will only be useful for 5 years from the date of acquisition with a salvage value of $7,000.

You are to write a message to the President, Janet Brown, describing how this change will affect the 2022 financial statements, both the income statement and balance sheet. Give a high level overview on how you calculated the new depreciation expense and accumulated depreciation. Also, discuss how this change will affect prior years financial statements.

Remember your audience. Your message must be concise and completely free of spelling and grammatical errors. Refer to the textbook and Chapter 10 PowerPoint slide deck for the topic Change in Estimates for Depreciation.

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