Accounting Changes
Barney Corporation began business on January 1, 2006. The company has released the following financial statements for 2006 and 2007 and has prepared the following proposed statements for 2008.
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Barney Corporation |
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Comparative Balance Sheets |
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December 31 |
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2008 |
2007 |
2006 |
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Assets |
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Cash |
$249,000 |
$219,000 |
$165,000 |
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Capitalized exploration costs |
60,000 |
45,000 |
30,000 |
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Equipment |
150,000 |
150,000 |
150,000 |
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Accumulated depreciation—equipment |
(45,000) |
(30,000) |
(15,000) |
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Total assets |
$414,000 |
$384,000 |
$330,000 |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
$177,000 |
$177,000 |
$147,000 |
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Common stock |
165,000 |
165,000 |
165,000 |
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Retained earnings |
72,000 |
42,000 |
18,000 |
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Total liabilities and stockholders’ equity |
$414,000 |
$384,000 |
$330,000 |
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Sales |
$315,000 |
$300,000 |
$255,000 |
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Cost of goods sold |
$240,000 |
$225,000 |
$189,000 |
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Administrative expenses |
12,500 |
23,500 |
28,000 |
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Amortization of capitalized exploration costs |
17,500 |
12,500 |
5,000 |
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Depreciation expense—equipment |
15,000 |
15,000 |
15,000 |
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Total costs |
$285,000 |
$276,000 |
$237,000 |
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Net income |
$ 30,000 |
$ 24,000 |
$ 18,000 |
Barney Corporation acquired the equipment for $150,000 on January 1, 2006, and began depreciating the equipment over a 10 year estimated useful life with no salvage value, using the straight line method of depreciation. The capitalized exploration costs reflect oil and gas drilling costs that Barney has capitalized under the full cost method. As of January 1, 2008, Barney has decided to make the following accounting changes.
(a) For justifiable reasons, Barney Corporation changed to the double declining balance method of depreciation for the equipment as of January 1, 2008.
(b) For justifiable reasons, Barney Corporation changed from the full cost to the successful efforts method of accounting for oil and gas drilling costs as of January 1, 2008. Under the successful efforts method, all drilling costs are expensed as incurred. This change is a change in accounting principle.
Instructions: In 3 year comparative format, prepare the balance sheets, statements of income, and statements of retained earnings that would be reported in 2008 for the years 2006, 2007, and 2008. Barney has not yet paid any dividends. Make sure to correctly treat the accounting changes mentioned above. (Ignore any income tax effects.)