(a)
(a) DENISE HABBE INC.
Comparative Income Statements
For the Years 2008 and 22007
| |2008 |22007 |
|Sales |$340,000 |$270,000 |
|Cost of sales | 176,000* | 166,000** |
|Gross profit |164,000 |104,000 |
|Expenses | 83,000*** | 50,000 |
|Income before cumulative effect of a change in accounting principle | | |
| |81,000 |54,000 |
|Cumulative effect on prior years of retro-active application of new depreciation method | | |
| | | |
| |15,000 | |
|Net income |$ 96,000 |$ 54,000 |
***$200,000 – $24,000
***$142,000 + $24,000
***$88,000 – ($30,000 – $25,000)
DENISE HABBE INC.
Statement of Retained Earnings
For the Years 2008 and 22007
| |2008 |22007 |
|Retained earnings (January 1) |$101,000 |$ 72,000 |
|Net income |96,000 |54,000 |
|Dividends |(30,000) |(25,000) |
|Retained earnings (December 31) |$167,000 |$101,000 |
|(b) |DENISE HABBE INC. Income Statement |DENISE HABBE INC. Statement of Retained Earnings For the |
| |For the Year 2008 |Year 2008 |
| |Sales |$340,000 |Retained earnings (January 1) | |
| | | | |$125,000 |
| |Cost of sales | 176,000 |Prior period adjustment— inventory correction | |
| | | | | |
| | | | |(24,000) |
| |Gross profit |164,000 | | |
| |Expenses |83,000 | | |
| |Income before cumu-lative effect of a change in | |Retained earnings adjusted | |
| |accounting principle | | |101,000 |
| | |81,000 | | |
| | | |Net income |96,000 |
| |Cumulative effect on prior years of retro-active | |Dividends | (30,000) |
| |application of new depreciation method | | | |
| | | | | |
| | | | | |
| | |15,000 | | |
| | | |Retained earnings (December 31) | |
| | | | |$167,000 |
| |Net income |$ 96,000 | | |
Calculations and explanations:
1.22007 cost of sales increased $24,000; 2008 cost of sales decreased $24,000.
2.22007 expenses remained unchanged.
3.2008 expenses decreased $5,000 ($30,000 – $25,000).
4.2008 cumulative effect is the difference in the prior year’s depreciation ($40,000 – $25,000).
5.Additional disclosures would be:
a. Footnote describing accounting change.
b. Pro-forma amounts, assuming retroactive application of new
depreciation method.
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