Question #$3,(40$ Marks, $40$ Minutes$)$

This Examination Has Been Prepared by the House of Timujin and Subject to Copy Right Laws. Unauthorized Copying, Downloading, Distribution or Transmission is Strictly Prohibited!

Presented below are the comparative statements for the Rana Asifi Company Ltd$.$

$20242023$

Sales $..................................................................................$ $ $2,000,000$ $ $1,600,000$

Cost of Goods Sold $...........................................................1,000,000700,000$

Gross Margin $.....................................................................$ $ $1,000,000$ $ $900,000$

Operating Expenses $..........................................................200,000150,000$

Depreciation Expenses $.....................................................?250,000$

Net Income $........................................................................$ $ $?$ $ $500,000$

On December $31$st$,2024,$ before the books were closed, the management and the accountant Samual ElMalLevy of the Rana Asifi Company Ltd$.$ made the following determination about three depreciable assets:

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Depreciable asset A was purchased January $1$st$,2019.$ It originally cost $$3,500,000$ and, for depreciation purposes, the straight$-$line method was originally chosen. The asset was originally expected to be useful for $25$ years and have a zero residual value. In $2024,$ the decision was made to change depreciation method from the straight$-$line to the double declining method, and the estimates relating to the useful life and the residual value remained unchanged $($assume a change in policy$).$

Depreciable asset B was purchased January $1$st$,2020.$ It originally cost $$1,050,000$ and for depreciation purposes, the straight$-$line method was chosen. The asset originally expected to be useful for $15$ years and have a zero residual value. In $2024,$ the decision was made to shorten the total life of this asset to $9$ years and the residual value changed to $$70,000.$

Depreciable asset C was purchased January $1$st$,2020.$ The asset$$s original cost was $$500,000$ and this amount was entirely expensed in $2020.$ This particular asset has a $10-$year useful life and no residual value. The straight$-$line method was chosen for depreciation purposes.

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Additional information:

In $2024,$ the company discovered that the ending inventory for $2023$ was overstated by $$45,000$; ending inventory for $2024$ was incorrectly overstated by $$65,000.$

The Company had beginning Retained Earnings of $$500,000$ as at December $31$st$,2023.$ Dividends paid were $$90,000$ in $2023$ and $$110,000$ in $2024.$

The books had not been closed.

This Examination Has Been Prepared by the House of Timujin and Subject to Copy Right Laws. Unauthorized Copying, Downloading, Distribution or Transmission is Strictly Prohibited!

Required:

This Examination Has Been Prepared by the House of Timujin and Subject to Copy Right Laws. Unauthorized Copying, Downloading, Distribution or Transmission is Strictly Prohibited!

Prepare the revised Income Statement and Retained Earnings Statement for $2024$ and $2023,$ assuming comparative statements.

Prepare the compound journal entry to record the change in accounting method$/$errors in $2024,$ and to adjust the inventory error.