Problem 1

A company purchased a piece of equipment on January 2, 20x5 for $560,000 (residual

value of zero), and determined that it would need to be decommissioned at the end of its

useful life at an estimated cost of $150,000. The relevant discount rate is 5% and the

useful life is 20 years.

The CFO believes that advances in technologies will cause this estimate to be $50,000 in

20x13 and is interested in knowing what impact this change in estimate will have on the

financial statements for the year ending December 31, 20x13. Assume that the discount

rate will be 6% in 20x13.

Required - Prepare the journal entries for the year 20x5. In addition, what impact will the

change in estimate have on the financial statements for the year ending December 31,

20x13?