Question
Moncton Developments Ltd. decided to change from the declining-balance method of depreciation to the straight-line method effective 1 January 2019. This change will be implemented
Moncton Developments Ltd. decided to change from the declining-balance method of depreciation to the straight-line method effective 1 January 2019. This change will be implemented retrospectively. The following information was provided:
Year | Net Income as Reported | Excess of Declining-Balance Depreciation over straight-Line Depreciation |
| ||||||
2015* |
| $ | (58,200) |
|
| $ | 2,200 |
|
|
2016 |
|
| 57,400 |
|
|
| 6,600 |
|
|
2017 |
|
| 36,400 |
|
|
| 5,500 |
|
|
2018 |
|
| 85,000 |
|
|
| 3,900 |
|
|
*First year of operations. The company has a Dec 31st year-end. The tax rate is 20%. No dividends were declared until 2019 $78,400 of dividends were declared and paid in Dec 2019. Income for 2019, calculated using the new accounting policy, was $612,800 after income tax.
Required: a) Calculate the earnings correction that Moncton Developments Ltd.. must show in the 2019 financial statements.
b) prepare the 2019 entry to record the change in accounting policy.
c) Present the retained earnings reconciliation that would appear on Moncton Developments statement of changes in equity.
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