Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2014 and 2015.\nLIFO Basis FIFO Basis\n2
Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2014 and 2015.
\r\nLIFO Basis FIFO Basis
\r\n2014 2013 2014 2013
\r\nSales $3,000 $3,000 $3,000 $3,000
\r\nCost of goods sold 1,130 1,000 1,100 940
\r\nOperating expenses 1,000 1,000 1,000 1,000
\r\nIncome before profi t-sharing 870 1,000 900 1,060
\r\nProfi t-sharing expense 87 100 96 100
\r\nNet income $ 783 $ 900 $ 804 $ 960
\r\n2015 2014
\r\nSales $340,000 $270,000
\r\nCost of sales 200,000 142,000
\r\nGross profi t 140,000 128,000
\r\nExpenses 88,000 50,000
\r\nNet income $ 52,000 $ 78,000
\r\nRetained earnings (Jan. 1) $125,000 $ 72,000
\r\nNet income 52,000 78,000
\r\nDividends (30,000) (25,000)
\r\nRetained earnings (Dec. 31) $147,000 $125,000
\r\nThe following additional information is provided:
\r\n1. In 2015, Denise Habbe 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 2014 for $100,000 with an estimated useful life of 4 years and no salvage value. (The 2015 income statement contains depreciation expense of $30,000 on the assets purchased at the beginning of 2014.)
\r\n2. In 2015, the company discovered that the ending inventory for 2014 was overstated by $24,000; ending inventory for 2015 is correctly stated.
\r\nInstructions
\r\nPrepare the revised retained earnings statement for 2014 and 2015, assuming comparative statements.
\r\n(Ignore income taxes.)