Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $24,400, was purchased on 1 January 20X1. It has an estimated residual value of $6,100. On the basis of experience since acquisition, management has decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated residual value. The change is to be effective on 1 January 20X5. The 20x5 financial statements are prepared on a comparative basis; 20X4 and 20x5 Incomes before depreciation were $50,100 and $53,200, respectively. Disregard Income tax considerations. Required: 1-a. Analyze the effects of the change. (Amounts to be deducted should be indicated by a minus sign.) Answer is complete but not entirely correct. 20x1 2005 Analysis Cost 24,400 $ 24,400 Accumulated depreciation to date 00 (6,760) Residual value (7.500) (7.500) To be depreciated $ 16,900 $ 10,140 Annual depreciation (SL): Per year $ 1,600 $ 1,014 1-b. Which approach should be used-prospective without restatement, retrospective with partial restatement, or retrospective with full restatement? Approach used Answer is complete and correct. Prospective without restatement 2. Prepare the entry, to appropriately reflect the 20X5 depreciation in the accounts for 20X5, the year of the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. No 1 Date 2005 Account Title Debit Credit Depreciation expense 1,014 Accumulated depreciation, equipment 0 1,014 3. Show how the accounting change, the equipment, and the related depreciation should be reported on the 20X5 financial statements, Including comparative 20X4 results. Answer is complete but not entirely correct. 2005 20X4 Comparative SFP, 31 December Equipment Accumulated depreciation Netbook value Comparative SCI for year Earings prior to depreciation and tax Depreciation expense Earnings before tax $ 24,400 $ 24,400 (7,774) $ 16,626 6,760 17,640 $ 53,200 $ 50,100 (1,014) (1,600) $ 52,186 S 48,410

Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $24,400, was purchased on 1 January 20X1. It has an estimated residual value of $6,100. On the basis of experience since acquisition, management has decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated residual value. The change is to be effective on 1 January 20X5. The 20x5 financial statements are prepared on a comparative basis; 20X4 and 20x5 Incomes before depreciation were $50,100 and $53,200, respectively. Disregard Income tax considerations. Required: 1-a. Analyze the effects of the change. (Amounts to be deducted should be indicated by a minus sign.) Answer is complete but not entirely correct. 20x1 2005 Analysis Cost 24,400 $ 24,400 Accumulated depreciation to date 00 (6,760) Residual value (7.500) (7.500) To be depreciated $ 16,900 $ 10,140 Annual depreciation (SL): Per year $ 1,600 $ 1,014 1-b. Which approach should be used-prospective without restatement, retrospective with partial restatement, or retrospective with full restatement? Approach used Answer is complete and correct. Prospective without restatement 2. Prepare the entry, to appropriately reflect the 20X5 depreciation in the accounts for 20X5, the year of the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete but not entirely correct. No 1 Date 2005 Account Title Debit Credit Depreciation expense 1,014 Accumulated depreciation, equipment 0 1,014 3. Show how the accounting change, the equipment, and the related depreciation should be reported on the 20X5 financial statements, Including comparative 20X4 results. Answer is complete but not entirely correct. 2005 20X4 Comparative SFP, 31 December Equipment Accumulated depreciation Netbook value Comparative SCI for year Earings prior to depreciation and tax Depreciation expense Earnings before tax $ 24,400 $ 24,400 (7,774) $ 16,626 6,760 17,640 $ 53,200 $ 50,100 (1,014) (1,600) $ 52,186 S 48,410

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 7RE: Bliss Company owns an asset with an estimated life of 15 years and an estimated residual value of...

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