(Accounting for a change in accounting estimate, LO 3, 7) On October 1, 2001 Independent Manufacturing Inc. (Independent) purchased a state-of-the-art mould-casting machine for its manufacturing facility for $8,200,000. Independent’s management estimated that the machine would be useful for eight years, at which time the machine could be sold for $500,000. Independent uses straight-line amortization on all its capital assets. In September 2005 management realized that because of rapid technological changes, the machine would not likely be useful beyond fiscal 2007. Therefore, Independent decided to shorten its estimate of the machine’s useful life to six years and the estimate of the residual value to zero.

Independent’s year end is September 30.

Required:

a. Is the change being made by Independent considered a change in accounting policy or a change in accounting estimate? Explain. How would the change be accounted for?

b. What amortization expense would Independent have originally reported in fiscal 2002, 2003, and 2004 for the mould-casting machine?

c. What amortization expense would Independent have reported in fiscal 2002, 2003, and 2004 for the mould-casting machine after the accounting change had been made?

d. What amortization expense will Independent report for the year ended September 30, 2005?

e. What are the implications of this change to users of the financial statements?

Explain.

f. Do you think that this type of change can be objectively made? Explain. What possible motivations could Independent’s managers have for making the change? Explain.