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P22-6, Accounting Change and Error Analysis- Madrasa Inc.

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Question;On December 31, 2010, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three depreciable assets.1. Depreciable asset A was purchased January 2, 2007. It originally cost;and, for depreciation purposes, the straight-line method was originally chosen. The asset was originallyexpected to be useful for;years and have a zero salvage value. In 2010, thedecision was made to change the depreciation method from straight-line to sum-of-years'-digits, andthe estimates relating to useful life and salvage value remained unchanged.2. Depreciable asset B was purchased January 3, 2006. It originally cost;and, for depreciation purposes, the straight-line method was chosen. The asset was originallyexpected to be useful for;years and have a zero salvage value. In 2010, thedecision was made to shorten the total life of this asset to;years and toestimate the salvage value at;3. Depreciable asset C was purchased January 5, 2006. The asset's original cost was;and this amount was entirely expensed in 2006. This particular asset has a 10-year useful life and no salvage value. The straight-line method was chosen for depreciation purposes.Additional data:1. Income in 2010 before depreciation expense amount to;2. Depreciation expense on assets other than A, B, and C totaled;in 2010.3. Income in 2009 was reported at;4. Ignore all income tax effects.5.;shares of common stock were outstanding in 2009 and 2010.Instructions;(a) Prepare all necessary entries in 2010 to record these determinations.;(b) Prepare comparative retained earnings statements for Madrasa Inc. for 2009 and 2010. Thecompany had retained earnings of;at December 31, 2008.

 

Paper#44237 | Written in 18-Jul-2015

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