Reference no: EM133012051

Question - Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $27,100, was purchased on 1 January 20X1. It has an estimated residual value of $7,000. On the basis of experience since acquisition, management has decided in 20X5 to depreciate it over a total life of 14 years instead of 10 years, with no change in the estimated residual value. The change is to be effective on 1 January 20X5. The 20X5 financial statements are prepared on a comparative basis; 20X4 and 20X5 incomes before depreciation were $52,600 and $55,100, respectively. Disregard income tax considerations.

Required -

1-a. Analyze the effects of the change. (Leave no cells blank - be certain to enter "0" wherever required. Amounts to be deducted should be indicated by a minus sign.)

1-b. Which approach should be used-prospective without restatement, retrospective with partial restatement, or retrospective with full restatement?

2. Prepare the entry, to appropriately reflect the 20X5 depreciation in the accounts for 20X5, the year of the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. Show how the accounting change, the equipment, and the related depreciation should be reported on the 20X5 financial statements, including comparative 20X4 results.