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.)