Problem

Let's assume that on 1/1/2010, the Overall Corporation purchased a building for $520,000. The building had an estimated life of about 20 years and an estimated residual (salvage) value of $20,000 let's say. Overall has taken depreciation on the building using the straight-line method. At the beginning of 2016, the following independent situations occur:

-Overall estimates the remaining life of the building to be 10 years (for a total of 16 years).

-Overall changes to the sum-of-the-years'-digits method.

-Overall discovers it had overlooked the estimated residual (or salvage) value in calculating the annual depreciation expense.

For each of these independent situations, first identify what the change is and second, determine how each change may influence the balance sheet and income statement. Remember, each situation above is independent of each other and should not be considered together.