Presented below are the comparative income statements for Denise Habbe Inc. for

Question

Presented below are the comparative income statements for Denise Habbe Inc. for the years 2014 and 2015.

2015

2014

The following additional information is provided:

Prepare the revised retained earnings statement for 2014 and 2015, assuming comparative statements. (Ignore income taxes.)

DENISE HABBE INC.
Retained Earnings Statement
For the Year Ended

2015

2014

2015

2014

Sales $ 339,490 $ 269,540 Cost of sales 200,970 140,180 Gross profit 138,520 129,360 Expenses 88,380 48,310 Net income $ 50,140 $ 81,050 Retained earnings (Jan. 1) $ 132,620 $ 74,810 Net income 50,140 81,050 Dividends ( 29,890 ) ( 23,240 ) Retained earnings (Dec. 31) $ 152,870 $ 132,620

Explanation / Answer

Working

ending inventory for 2014 was overstated = $ 19986

Begining inventory for 2015 was overstated = $ 19986

Net Income of 2015 was understated = 19986

Correct Net Income of 2015 = 50140+19986

Correct Net Income of 2015 = 70126

Correct Net Income of 2014 = 81050-19986

Correct Net Income of 2014 = 61064

DENISE HABBE INC. Retained Earning Statement For the Year Ended 2015 2014 Retained Earnings, January 1, unadjusted        132,620          74,810 Less : Correction of Error for Inventory Overstatement        (19,986)                   -   Retained Earnings, January 1, adjusted        112,634          74,810 Add : Net Income          70,126          61,064 Less : Dividends        (29,890)       (23,240) Retained Earnings, December 31        152,870       112,634

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