J. Mair has been employed as a bookkeeper at Problems Inc. for a number of years. With the assistance of a clerk, Mair handles all accounting duties, including the preparation of financial statements. The following is a statement of earned surplus prepared by Mair for 2013:
Problems Inc.
Statement of Earned Surplus for 2013
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,843
Additions:
Change in estimate of 2013 amortization expense . . . . . . . . . . . . . . . . . . . . .. $ 3,100
Gain on sale of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17,420
Interest revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,900
Profit and loss for 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,760
Total additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,180
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$114,023
Deductions:
Increased depreciation due to change in estimated life . . . . . . . . . . . . . . . . . . $ 6,400
Dividends declared and paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Loss on sale of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,490
Loss from major casualty (extraordinary) . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 25,310
Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,200
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . $ 67,823
Instructions:
1. Prepare a schedule showing the correct net income for 2013. (Ignore income taxes.)
2. Prepare a retained earnings statement for 2013.
3. Explain why you have changed the retained earnings statement?