(Accounting Change and Error Analysis) 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 $540,000 and, for depreciation pur- poses, 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 $180,000 and, for depreciation pur- poses, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero residual value. In 2014, the decision was made to shorten the total life of this asset to 9 years and to estimate the residual value at $3,000.

3. Equipment C was purchased January 5, 2010. The asset’s original cost was $160,000, and this amount was entirely expensed in 2010. This particular asset has a 10-year useful life and no residual value. The straight-line method was chosen for depreciation purposes.

Additional data:

1. Income in 2014 before depreciation expense amounted to $400,000.

^{2. Dep r eciation expense on assets other than A, B, and C totaled $55,000 in 2014.}

^{3. Income in 2013 was r eported at $370,000.}

^{4. Igno r e all income tax e f fects.}

^{5. 100,000 sha r es of common stock we r e outstanding in 2013 and 2014.}

Instructions

^{(a) P r epa r e all necessary entries in 2014 to r eco r d these determinations.}

^{(b) P r epa r e comparative r etained earnings statements for Madrasa Inc. for 2013 and 2014. The company}

^{had r etained earnings of $200,000 at December 31, 2012.}