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

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Description

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 originally
expected to be useful for years and have a zero salvage value. In 2010, the
decision was made to change the depreciation method from straight-line to sum-of-years’-digits, and
the 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 originally
expected to be useful for years and have a zero salvage value. In 2010, the
decision was made to shorten the total life of this asset to years and to
estimate 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. The
company had retained earnings of at December 31, 2008.

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