accounting changes and error analysis

Project Description:

p22-1b (change in estimate and error correction) bishop way company is in the process of preparing
its financial statements for 2014. assume that no entries for depreciation have been recorded in 2014. the
following information related to depreciation of fixed assets is provided to you.
1. bishop way purchased equipment on january 2, 2010, for $142,000. at that time, the equipment had
an estimated useful life of 8 years with a $6,000 salvage value. the equipment is depreciated on a
straight-line basis. on january 2, 2014, as a result of additional information, the company determined
that the equipment has a remaining useful life of 6 years with a $2,000 salvage value.
2. during 2014, bishop way changed from the double-declining-balance method for its warehouse to
the straight-line method. the building originally cost $620,000. it had a useful life of 20 years and a
salvage value of $20,000. the following computations present depreciation on both bases for 2012
and 2013.
2013 2012
straight-line $30,000 $30,000
declining-balance 55,800 62,000
3. bishop way purchased a machine on july 1, 2011, at a cost of $72,000. the machine has a salvage
value of $9,000 and a useful life of 6 years. bishop way’s bookkeeper recorded straight-line depreciation
in 2012 and 2013 but failed to consider the salvage value.
instructions
(a) prepare the journal entries to record depreciation expense for 2014 and correct any errors made to
date related to the information provided.
(b) show comparative net income for 2013 and 2014. income before depreciation expense was $420,000
in 2014, and was $386,000 in 2013. (ignore taxes.)


p22-6b (accounting change and error analysis) on december 31, 2014, before the books were closed,
the management and accountants of tannery inc. made the following determinations about three depreciable
assets.
1. depreciable asset x was purchased january 4, 2012. the asset’s original cost was $114,000, and this
amount was entirely expensed in 2012. this particular asset has a 8-year useful life and no salvage
value. the straight-line method was chosen for depreciation purposes.
2. depreciable asset y was purchased january 2, 2013. it originally cost $540,000 and, for depreciation
purposes, the sum-of-the-years’ digit method was originally chosen. the asset was originally expected
to be useful for 10 years and have a zero salvage value. in 2014, the decision was made to
change the depreciation method from sum-of-the-years’ digits to straight-line, and the estimates relating
to useful life and salvage value remained unchanged.
3. depreciable asset z was purchased january 3, 2010. it originally cost $160,000 and, for depreciation
purposes, the straight-line method was chosen. the asset was originally expected to be useful for
8 years and have a zero salvage value. in 2014, the decision was made to extend the total life of this
asset to 10 years and to estimate the salvage value at $5,000.
additional data:
1. income in 2014 before depreciation expense amounted to $316,000.
2. depreciation expense on assets other than x, y, and z totaled $41,000 in 2014.
3. income in 2013 was reported at $298,000.
4. ignore all income tax effects.
5. 100,000 shares of common stock were outstanding in 2013 and 2014.
instructions
(a) prepare all necessary entries in 2014 to record these determinations.
(b) prepare comparative retained earnings statements for tannery inc. for 2013 and 2014. the company
had retained earnings of $325,000 at december 31, 2012.
Skills Required:
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