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Recording and Reporting a Change in Estimated Useful Life A company has been depreciating equipment using a 10-year life on a straight-line basis. The equipment, which costs $60,000, was purchased on January 1 of Year 1 . The equipment has an estimated residual value of $15,000. On January 1 of Year 5 , management decides to depreciate the equipment over a total life of 14 years instead of 10 , with no change in the estimated residual value. The annual financial statements are prepared on a comparative basis (Year 4 and Year 5 are presented). Income before depreciation for Year 4 and Year 5 was $124,500 and $132,000, respectively. Ignore income tax. Required a. Prepare the journal entries to be recorded in Year 1 through Year 4 for annual depreciation. b. Determine the ending balance in accumulated depreciation on December 31 of Year 1 through Year 4. c. Prepare the entry to record depreciation expense in Year 5 , the year of the change. d. Illustrate how the change shouid be reported on the Year 5 balance sheet and income statement, which are accompanied by the Year 4 results for comparative purposes. Include the earnings per share disclosure. Shares of common stock outstanding are 100,000 . Note: Do not use negative signs with your answers. b. Accumulated depreciation, December 31 , Year 4 s c. \begin{tabular}{|c|c|c|c|} \hline Date & Account Name & Dr. & Cr. \\ \hline Dec 31, Year 5 & & & \\ \hline & & & \\ \hline & tiation. & & \\ \hline \end{tabular} d. \begin{tabular}{|c|c|c|} \hline Balance Sheet, Dec. 31 & Year 4 & Year 5 \\ \hline Equipment & s & 5 \\ \hline Less: Accumulated depreciation & & \\ \hline Equipment, net & 5 & s \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline Income Statement & Year 4 & Year 5 \\ \hline Income prior to depreciation and accounting change & $ & s \\ \hline Depreciation expense & & \\ \hline Nerincome & $ & s \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline & Numerator & 1. Denominator & = & Result \\ \hline Earnings per share Vear 4 & s & 1 & = & s \\ \hline Earnings per share Year 5 & is & 1 & = & s \\ \hline \end{tabular}

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