resented below are the comparative income statements for Pannebecker Inc. for th
ID: 2498143 • Letter: R
Question
resented below are the comparative income statements for Pannebecker Inc. for the years 2011 and 2012.
2012
2011
The following additional information is provided.
Prepare the revised retained earnings statement for 2011 and 2012, assuming comparative statements. (Ignore income taxes.)
PANNEBECKER INC.
Retained Earnings Statement
For the Year Ended
2012
2011
2012
2011
Sales $340,690 $267,020 Cost of sales 197,410 140,220 Gross profit 143,280 126,800 Expenses 88,700 50,690 Net income $54,580 $76,110 Retained earnings (Jan. 1) $123,380 $71,600 Net income 54,580 76,110 Dividends (28,500 ) (24,330 ) Retained earnings (Dec. 31) $149,460 $123,380Explanation / Answer
2012
Depreciation as per straight line method which will be now used=100000/4=$25000per year
Depreciation as per sum-of-digit method=Depreciable Base ×Remaining Useful Life/Sum of the Years' Digits
Sum of the Years' Digits =n(n+1)/2
n=No of years
Sum of the years= 4(4+1)/2=10
1st year depreciation=100000*4/10= $40000
2nd year depreciation=100000*3/10= $30000
Total depreciation is for 2 years=$70000
Total depreciation as per SLM for 2 years=$50000
So profit will increase by $20000
When a change in the method of depreciation is made, depreciation is recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective recomputation of depreciation in accordance with the new method is adjusted in the accounts in the year in which the method of depreciation is changed
The ending inventory is overstated in 2011 so profit will decrease by $20890.
2012 2012 Sales $340,690 $267,020 Cost of sales 197,410 161,110 Gross profit 143,280 105,910 Expenses 68,700 50,690 Net income $74,580 $55,220 Retained earnings (Jan. 1) $123,380 $71,600 Net income 74,580 55,220 Dividends -28,500 -24,330 Retained earnings (Dec. 31) $169,460 $102,490 2011 Cost Of sales= Opening inventory+Purchases during the year-Closing inventory Overstated by $20890 so closing inventory will decrease so there is increase in cost of salesRelated Questions
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