The following are the comparative income statements for Pannebecker Inc. for the years 2021 and 2022.

The following additional information is provided.

1. In 2022, Pannebecker Inc. decided to switch its depreciation method from sum-of-the years’-digits to the straight-line method. The assets were purchased at the beginning of 2021 for $90,000 with an estimated useful life of 4 years and no residual value. The 2022 income statement contains depreciation expense of $27,000 on the assets purchased at the beginning of 2021.

2. In 2022, the company discovered that the ending inventory for 2021 was overstated by $20,000; ending inventory for 2022 is correctly stated.

Instructions

Prepare the revised retained earnings statement for 2021 and 2022, assuming comparative statements. (Ignore income taxes.)

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2022 2021 Sales $340,000 $270,000 Cost of sales 200,000 142,000 Gross profit 140,000 128,000 88,000 50,000 $ 52,000 $ 78,000 Retained earnings (Jan. 1) $125,000 $ 72,000 Expenses Net income Net income 52,000 78,000 (30,000) (25,000) Retained earnings (Dec. 31) $147,000 $125,000 Dividends