On October 1, 2010 Independent Manufacturing Inc. (Independent) purchased a state-of-the-art mould-casting machine for $2,500,000.

Independent’s management estimated the machine would be useful for seven years, at which time it could be sold for $400,000. Independent uses straight-line depreciation on all its capital assets. In September 2013, management realized that because of rapid technological changes, the machine would not likely be useful beyond fiscal 2015.

Therefore, Independent decided to shorten its estimate of the machine’s useful life to five years and reduce the estimated 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 depreciation expense would Independent have originally reported in fiscal 2011 and 2012 for the machine? What would the carrying amount of the machine have been on September 30, 2012?

c. What depreciation expense would Independent have reported in fiscal 2011 and 2012 for the machine after the accounting change had been made?

d. What depreciation expense will Independent report for the years ended September 30, 2013, 2014, and 2015? What would the carrying amount of the machine have been on September 30, 2013?

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

Explain.

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