Reference no: EM132794227

Major Corp. purchased a machine on January 1, 2017, for $900,000. The machine is being depreciated on a straight-line basis, using an estimated useful life of six years and no residual value. On January 1, 2020, Major determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no residual value. An accounting change was made in 2020 to reflect this additional information.

problem 1: Assuming that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate for all years since the machine was purchased was 30%, what should be reported in the income statement for calendar 2020 as the cumulative effect on prior years of changing the estimated useful life of the machine?

option 1: $315,000

option 2: $60,000

option 3: $0

option 4: $90,000