How do firms account for a change in depreciation method?

A.

A change in depreciation method is considered a self-correcting change. If the change in depreciation method will self-correct within two years, and the correction is made before the books are closed for the second year, an entry is needed to correct beginning retained earnings and other balance sheet accounts. If the change in depreciation method is made after the books are closed for the second year, the change has already self-corrected and no entry is needed.

B.

A change in depreciation method is a change in accounting estimate that is affected by a change in accounting principle. A change in depreciation method is based on many changes in estimates regarding the future economic benefits to be derived from the use of the asset. Thus, a change in depreciation method is accounted for as a change in accounting estimate.

C.

A change in depreciation method is a change in accounting principle that is affected by a change in accounting estimate. A change in depreciation method is based on a change in accounting principle, as it affects both balance sheet and income statement accounts. Thus, a change in depreciation method is accounted for as a change in accounting principle.

D.

A change in depreciation method is considered a self-correcting change. If the change in depreciation method will self-correct within four years, and the correction is made before the books are closed for the fourth year, an entry is needed to correct beginning retained earnings and other balance sheet accounts. If the change in depreciation method is made after the books are closed for the fourth year, the change has already self-corrected and no entry is needed.