In 2022, management at Pink Paper Company increased the estimated useful lives of its equipment by 50%. In 2024, it was determined that the service lives had been overestimated in order to decrease depreciation expense and boost net income over the budgeted targets. The increase in net income allowed top executives to earn maximum bonuses in 2022 and 2023. What is the proper accounting treatment in this situation?
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In 2022, management at Pink Paper Company increased the estimated useful lives of its equipment by 50%. In 2024, it was determined that the service lives had been overestimated in order to decrease
Answer
The information should be disclosed in the notes to the 2024 financial statements, but no restatement or adjustment is required.
No adjustment or disclosure is required for the 2024 financial statements.
A change in estimated useful lives is a change in estimate that should be accounted for prospectively. No disclosure is required.
Prior period adjustment and restatement of the 2022 and 2023 financial statements is required. Disclosure in the notes to the 2024 financial statements is required.
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