current attempt in progress\ncarla vista anti - pollution company is suffering declining sales of its…

current attempt in progress\ncarla vista anti - pollution company is suffering declining sales of its principal product, non - biodegradable plastic cartons. the president, brian lee, instructs his controller, sharon walker, to lengthen asset lives to reduce depreciation expense. a processing line of automated plastic extruding equipment, purchased for $2.7 million in january 2027, was originally estimated to have a useful life of 8 years and a salvage value of $320,000. depreciation has been recorded for 2 years on that basis. brian wants the estimated life changed to 12 years total and the straight - line method continued. sharon is hesitant to make the change, believing it is unethical to increase net income in this manner. brian says, \hey, the life is only an estimate, and ive heard that our competition uses a 12 - year life on their production equipment.\\n(c)\nwhat is the effect of brians proposed change on income before taxes in the year of change?\nincome before income taxes in the year of change is increased by $ \n etextbook and media\nsave for later

current attempt in progress\ncarla vista anti - pollution company is suffering declining sales of its principal product, non - biodegradable plastic cartons. the president, brian lee, instructs his controller, sharon walker, to lengthen asset lives to reduce depreciation expense. a processing line of automated plastic extruding equipment, purchased for $2.7 million in january 2027, was originally estimated to have a useful life of 8 years and a salvage value of $320,000. depreciation has been recorded for 2 years on that basis. brian wants the estimated life changed to 12 years total and the straight - line method continued. sharon is hesitant to make the change, believing it is unethical to increase net income in this manner. brian says, \hey, the life is only an estimate, and ive heard that our competition uses a 12 - year life on their production equipment.\\n(c)\nwhat is the effect of brians proposed change on income before taxes in the year of change?\nincome before income taxes in the year of change is increased by $ \n etextbook and media\nsave for later

Answer

Explanation:

Step1: Calculate original annual - depreciation

The formula for straight - line depreciation is $Depreciation=\frac{Cost - Salvage\ value}{Useful\ life}$. The cost of the equipment is $C = 2700000$, the salvage value is $S=320000$, and the original useful life is $n_1 = 8$ years. The original annual depreciation $D_1=\frac{2700000 - 320000}{8}=\frac{2380000}{8}=297500$.

Step2: Calculate book - value after 2 years

The book - value $BV$ after $t = 2$ years is $BV_1=C - D_1\times t$. $BV_1=2700000-297500\times2=2700000 - 595000 = 2105000$.

Step3: Calculate new annual - depreciation

The new useful life is $n_2=12$ years, and 2 years have already passed, so the remaining useful life is $n = 12 - 2=10$ years. The new annual depreciation $D_2=\frac{2105000 - 320000}{10}=\frac{1785000}{10}=178500$.

Step4: Calculate the change in depreciation

The change in depreciation $\Delta D=D_1 - D_2$. $\Delta D=297500-178500 = 119000$.

Since depreciation is an expense, a decrease in depreciation expense will increase the income before taxes.

Answer:

119000