Reference no: EM133167237
Question - ADMS Inc. reports the following situations in 2022:
a. Machine 1 was acquired at a cost of $ 620,000 in 2021. It was depreciated on a declining balance method using a rate of 40%. Salvage values were expected to be minimal. In 2022, management decided that, based on the usage patterns seen to date, units-of production would be a more appropriate method of depreciation, The machine is used sporadically and suffers from wear and tear only as used. Estimated units of production total 150,000, of which 70,000 units were produced in 2021 and 25,000 in 2022.
b. Machine 2 was acquired in 2019 at a cost of $ 423,000. Management discovered in 2022 that the machine was expensed in 2019, despite the fact that it had a useful life of 9 years, with 10% salvage value. Straight-line depreciation should have been used for this asset.
For all depreciation, the company follows a policy of recording a full-year depreciation charged in the first year, but no depreciation is charged in the year of disposal.
Required -
1. Classify each of the changes described above and identify the correct accounting treatment.
2. For each machine, calculate 2022 depreciation.
3. If a retrospective adjustment is needed, calculate the retrospective adjustment in 2022. The tax rate is 36%.
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Compute depreciation for each year
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