The comparative statements for Hessey Inc follow The following additional information
The comparative statements for Hessey Inc. follow:
The following additional information is provided:
1. In 2011, Hessey decided to change its depreciation method from sum-of-the-years’-digits to the straight-line method. The assets were purchased at the beginning of 2010 for $90,000 with an estimated useful life of four years and no residual value. (The 2011 income statement contains depreciation expense of $27,000 on the assets purchased at the beginning of 2010.)
2. In 2011, the company discovered that the ending inventory for 2010 was overstated by $20,000; ending inventory for 2011 is correctly stated.
Hessey follows ASPE.
Instructions
(a) Prepare the revised statements of retained earnings for 2010 and 2011, assuming comparative statements (ignore income tax effects). Do not prepare notes to the financial statements.
(b) Identify other possible accounting treatments for the change in depreciation method under alternative circumstances.
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