Rocket Man, Incorporated provided the following financial statement information for 2016:
Credit Sales……………………………………………………. $ 2,500,000
Retained Earnings, January 1, 2016 …………………………… 1,600,000
Sales…………………………………………………….……… 3,000,000
Selling and Administrative Expenses………………………….. 480,000
Restructuring Gain (pretax)……………………………………. 720,000
Cash Dividends Declared……………………………………… 190,000
Cost of Goods Sold……………………………………………. 1,755,000
Error Correction: 2011 rent was unpaid and unrecorded……… 40,000
Interest Income………………………………………………… 480,000
Interest Expense………………………………………………... 820,000
Gain on Sale of Investments (pretax)…………………………… 500,000
• Early in 2016, Rocket Man changed its plant and equipment accounting for depreciation from the double-declining balance method to the straight- line method. Rocket Man purchased the assets at the beginning of 2015 for $ 600,000; they had no scrap value and useful lives of 10 years. The balance in the accumulated depreciation account at the beginning of 2016 amounted to $ 120,000. Rocket Man recorded the straight-line depreciation expense of $ 53,333 in 2016 and included it in the $ 480,000 reported for selling, general, and administrative expenses. Depreciation expense would have been $ 96,000 if Rocket Man still used the double-declining balance method.
• Bad debt expense for 2016 of $ 50,000 is included in selling, general, and administrative expenses on the income statement. Rocket Man uses the percentage-of-credit-sales method of estimating bad debt expense. The estimated percentage was 1% in both 2014 and 2015 but changed to 2% in 2016.
Required
a. Assuming a tax rate of 40%, prepare the multiple-step income statement for Rocket Man for the year ended December 31, 2016.
b. Compute the cumulative effect of the accounting changes made in 2016.
c. Prepare the journal entries to record the accounting changes made in 2016.
d. Prepare the footnote disclosures required for the accounting changes made in 2016
e. Prepare the retained earnings column of the statement of stockholders’ equity for the year ended December 31, 2016.