What amount should warren report

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On January 1, year 1, Warren Co. purchased a $600,000 machine, with a five-year useful life and no salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The machine's carrying amount was $240,000 on December 31, year 2. On January 1, year 3, Warren changed to the straight-line method for financial reporting purposes. Warren can justify the change. Warren's income tax rate is 30%.

1. In its year 3 income statement, what amount should Warren report as the cumulative effect of this change?

2. On January 1, year 3, what amount should Warren report as deferred income tax liability as a result of the change?

Reference no: EM131106577

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