Reference no: EM132817866

On December 31, 2014, before the books were closed, the management and accountants of Baker Inc made the following determinations about three depreciable assets:

1. Depreciable asset A was purchased January 1, 2010. It originally cost $800,000 and, for depreciation purposes, the sum-of-the-years'-digits method was originally chosen. The asset was originally expected to be useful for 20 years and have a salvage value of $10,000. 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.

2. Depreciable asset B was purchased January 1, 2010. It originally cost $160,000 and was depreciated on the straight-line method basis. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2014, the decision was made to shorten the total life of this asset so that it had just 4 more years to go and to estimate the salvage value at $5,000.

3. Depreciable asset C was purchased January 1, 2010. The asset's original cost was $120,000, and this amount was entirely expensed in 2010. This particular asset has a 20-year useful life and no salvage value. The straight-line method was used for depreciation.

Additional data:

1. Income in 2014 before depreciation expense amounted to $400,000
2. Depreciation expense on assets other than A, B, and C totaled $75,000 in 2014.
3. Income in 2013 was reported at $380,000
4. Ignore all income tax effects.

Required:

Problem a) Prepare necessary journal entries in 2014 to record these determinations.

Problem b) Prepare comparative retained earnings statements for Baker Inc for 2013 and 2014. The company had retained earnings of $910,000 at December 31, 2012.