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19 March, 13:20

The Peridot Company purchased machinery on January 2, 2019, for $800,000. A five-year life was estimated and no residual value was anticipated. Peridot decided to use the straight-line depreciation method and recorded $160,000 in depreciation in 2019 and 2020. Early in 2021, the company revised the total estimated life of the machinery to eight years. Required: 1. What type of change is this? 2. Is Peridot required to revise prior years' financial statements as a result of the change? 3. Is Peridot required to provide a disclosure note to report the change? 4. Determine depreciation for 2021.

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  1. 19 March, 15:14
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    1. - Without Retrospective effect

    2. - No as it comes from a change in estimations not an accounting error.

    3. - yes. It will give a full explanation about the reasons to extend the useful life.

    4. - Depreciation expense for 2021: 60,000

    Explanation:

    1. - The change in the useful life does not represent an accounting error. It comes from the estimation process.

    800,000 - 160,000 x 2 = 480,000 book value at beginning 2021

    480,000 / 8 new useful life = 60,000 depreciation per year.
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