Reference no: EM131108800

Problem

On December 31, 2014, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three pieces of equipment.

1. Equipment A was purchased January 2, 2011. It originally cost $520,000 and, for depreciation purposes, the straight-line 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 straight-line to sum-of-the-years' digits, and the estimates relating to useful life and salvage value remained unchanged.

2. Equipment B was purchased January 3, 2010. It originally cost $249,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero salvage value. In 2014, the decision was made to shorten the total life of this asset to 9 years and to estimate the salvage value at $3,200.

3. Equipment C was purchased January 5, 2010. The asset's original cost was $181,300, and this amount was entirely expensed in 2010. 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 2014 before depreciation expense amounted to $391,000.
2. Depreciation expense on assets other than A, B, and C totaled $55,100 in 2014.
3. Income in 2013 was reported at $410,000.
4. Ignore all income tax effects.
5. 126,900 shares of common stock were outstanding in 2013 and 2014.

Prepare all necessary entries in 2014 to record these determinations. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare comparative retained earnings statements for Madrasa Inc. for 2013 and 2014. The company had retained earnings of $200,000 at December 31, 2012.