Holtzman Company is in the process of preparing its financial statements for 2014. Assume that no entries for depreciation have been recorded in 2014. The following information related to depreciation of fixed assets is provided to you.
1. Holtzman purchased equipment on January 2, 2011, for $85,000. At that time, the equipment had an estimated useful life of 10 years with a $5,000 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2014, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,000 salvage value.
2. During 2014, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $300,000. It had a useful life of 10 years and a salvage value of $30,000. The following computations present depreciation on both bases for 2012 and 2013.
2013 -Straight-line $27,000......Declining-balance 48,000
2012 -Straight-line $27,000......Declining-balance 60,000
3. Holtzman purchased a machine on July 1, 2012, at a cost of $120,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Holtzman's bookkeeper recorded straight-line depreciation in 2012 and 2013 but failed to consider the salvage value.
Prepare the journal entries to record depreciation expense for 2014 and correct any errors made to date related to the information provided. (Ignore taxes.)
*Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2014. The increase in the prior year's income before taxes is $1,200,000. The tax rate is 40%.
Prepare Shannon's 2014 journal entry to record the change in accounting principle
* At January 1, 2014, Beidler Company reported retained earnings of $2,000,000. In 2014, Beidler discovered that 2013 depreciation expense was understated by $400,000. In 2014, net income was $900,000 and dividends declared were $250,000. The tax rate is 40%.
Prepare a 2014 retained earnings statement for Beidler Company.