P11-10 Accounting changes; three accounting situations
Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2011 before any adjusting entries or closing entries are prepared.
a. On December 30, 2007, Rival Industries acquired its office building at a cost of $10,000,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2011, the estimate of useful life was revised to 28 years in total with no change in residual value.
b. At the beginning of 2007, the Hoffman Group purchased office equipment at a cost of $330,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the sum-of-the-years'-digits method. On January 1, 2011, the company changed to the straight-line method.
c. At the beginning of 2011, Jantzen Specialties, which uses the sum-of-the-years'-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net income by $445,000.
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