E22-7 (Change in Estimate and Error; Financial Statements) Presented below are the comparative income statements for Pannebecker Inc. for the years 2011 and 2012

E22-7 (Change in Estimate and Error; Financial Statements) Presented below are the comparative income statements for Pannebecker Inc. for the years 2011 and 2012.

2012 2011
Sales $340,000 $270,000
Cost of sales $200,000 $142,000
Gross profit $140,000 $128,000
Expenses $88,000 $50,000
Net income $52,000 $78,000

Retained earnings (Jan. 1) $125,000 $72,000
Net income $52,000 $78,000
Dividends ($30,000) ($25,000)
Retained earnings (Dec. 31) $147,000 $125,000

The following additional information is provided.

In 2012, Pannebecker Inc. decided to switch its depreciation method from sum-of-the-years’-digits to the straight-line method. The assets were purchased at the beginning of 2011 for $90,000 with an estimated useful life of 4 years and no salvage value. (The 2012 income statement contains depreciation expense of $27,000 on the assets purchased at the beginning of 2011.) In 2012, the company discovered that the ending inventory for 2011 was overstated by $20,000; ending inventory for 2012 is correctly stated.

Instructions
Prepare the revised retained earnings statement for 2011 and 2012, assuming comparative statements. (Ignore income taxes.)

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