At December 31, Year 2, Off-Line Co. changed its method of accounting for demo costs from writing off the costs over two years to expensing the costs immediately. Off-Line made the change in recognition of an increasing number of demos placed with customers that did not result in sales. Off-Line had deferred demo costs of $500,000 at December 31, Year 1, $300,000 of which were to be written off in Year 2 and the remainder in Year 3. Off-Line's income tax rate is 30%. In its Year 3 financial statements, what amount should Off-Line report as cumulative effect of change in accounting principle?
Okay so here is the problem. I understand that when it is an Accounting Principle "inseparable" from Accounting Estimate, it is treated as an accounting estimate which means 'prospective'. I get that. But how do I know when the Principle is "inseparable" from Accounting Estimate as opposed to "separable"? The answer explains this: Choice "b" is correct. A change in method of accounting for demo costs is a change in accounting principle inseparable from a change in estimate.
I guess my question is, how do I know that a change in method of accounting for demo costs is a change in accounting principle "inseparable" from a change in estimate? Why would it not be "separable"? I keep reading the book over and over yet still can not get this concept down.
Any help would be great! Thank you!!!