Question

A change in the estimated useful life of equipment requires 1) a retroactive change in the amount of periodic depreciation recognized in previous years. 2) that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset. 3) that the amount of periodic depreciation be changed in the current year and in future years. 4) that income for the current year be increased. REIMAGE: Suggested

Answer 1

Solution 1:

A change in estimated useful life of equipment requires:

"That the amount of periodic depreciation be charged in the current year and future years.

Hence option 3 is correct.

Solution 2:

Computation of COGS and ending inventory - Periodic FIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	360	$6.00	$2,160	360	$6.00	$2,160.00	0	$6.00	$0.00
Purchases:
12-Jun	840	$7.00	$5,880	840	$7.00	$5,880.00	0	$7.00	$0.00
23-Jun	1200	$8.00	$9,600	752	$8.00	$6,016.00	448	$8.00	$3,584.00
Total	2400		$17,640	1952		$14,056.00	448		$3,584.00

Computation of COGS and ending inventory - Periodic LIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	360	$6.00	$2,160	0	$6.00	$0.00	360	$6.00	$2,160.00
Purchases:
12-Jun	840	$7.00	$5,880	752	$7.00	$5,264.00	88	$7.00	$616.00
23-Jun	1200	$8.00	$9,600	1200	$8.00	$9,600.00	0	$8.00	$0.00
Total	2400		$17,640	1952		$14,864.00	448		$2,776.00

Computation of COGS and ending inventory - Periodic Weighted Average cost method
Particulars	Cost of goods available for sale			Cost of goods sold - Average cost			Ending Inventory - Average cost
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	360	$6.00	$2,160
Purchases:
12-Jun	840	$7.00	$5,880
23-Jun	1200	$8.00	$9,600
Total	2400	$7.350	$17,640	1952	$7.350	$14,347	448	$7.350	$3,293

FIFO method results in highest ending inventory

LIFO method results in highest cost of goods sold.