P22-1B (Change in Estimate and Error Correction) Bishop Way 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. Bishop Way purchased equipment on January 2, 2010, for $142,000. At that time, the equipment had

an estimated useful life of 8 years with a $6,000 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 6 years with a $2,000 salvage value.

2. During 2014, Bishop Way changed from the double-declining-balance method for its warehouse to

the straight-line method. The building originally cost $620,000. It had a useful life of 20 years and a

salvage value of $20,000. The following computations present depreciation on both bases for 2012

and 2013.

2013 2012

Straight-line $30,000 $30,000

Declining-balance 55,800 62,000

3. Bishop Way purchased a machine on July 1, 2011, at a cost of $72,000. The machine has a salvage

value of $9,000 and a useful life of 6 years. Bishop Ways bookkeeper recorded straight-line depreciation

in 2012 and 2013 but failed to consider the salvage value.

Instructions

(a) Prepare the journal entries to record depreciation expense for 2014 and correct any errors made to

date related to the information provided.

(b) Show comparative net income for 2013 and 2014. Income before depreciation expense was $420,000

in 2014, and was $386,000 in 2013. (Ignore taxes.)