Question

Ridge, Inc. follows IFRS for its external financial reporting, and Cannon Company follows GAAP for its external financial reporting. During 2021, both companies changed depreciation methods, from double-declining balance to straight-line. Compared to double-declining balance, for Ridge, Inc. the change resulted in a decrease in reported depreciation expense of $90,000, and for Cannon Company the change resulted in a reported decrease in depreciation expense of $105,000. The remaining useful lives of the assets impacted by the change in depreciation method is 10 years for both companies. How would this change impact the net income reported by Ridge, Inc. and Cannon Company for the year ended December 31, 2021

Answer 1

Answer: increase $90,000 ; increase $105,000

Explanation:

Based on the changes made, the impact the net income reported by Ridge, Inc. and Cannon Company for the year ended December 31, 2021 will be that there'll be an increase of $90,000 for Ridge Inc. and there'll also be an increase of $105,000 for Cannon Company.

It should be noted that the reduction in the depreciation will bring about a rise in the net income of both companies.