B _ D E F G H J K M N P R S T U V W X Y Z 1 Each of the following situations is independent: 2 3 4 $ 1. Change in estimated useful life and residual value. Company XYZ purchases equipment on 1 January 20x6 for 42,000 The company uses the straight-line method of depreciation, taking a full year's depreciation in the year 5 of acquisition. The equipment has an estimated residual value of $8,000.00 and an estimated useful life of 6 7 a residual value of 4 years. In 20x7, the company decides that the machine really has an origional total life of $ 7,000.00 8 9 How much is the depreciation expense for 20x7? 10 11 Solution: 12 13 14 15 16 17 18 2. Retrospective change in accounting policy. A private company changes its method of accounting for long-term 19 construction contracts from the percentage of completion method (PC) to the compelted contract method (CC) in 20x7. 20 The years affected by the change, and incomes under both methods, appear below (ignore income tax) 21 22 Year PC 23 20x5 $ 24 20x6 450 $ 275 25 20x7 650 225 160 750 26 5 years and 27 If the financial statements for 20x6 and 20x7 are shown comparatively, what is the amount of the accounting policy adjustments to the 1 January 28 balance of retained earnings for 20x6 and 20x7? 29 30 Solution: 31 32 33 34 Instructions Part 1 Part 2 Part 3 Activate Windows Go to Settings to activate Windows