Exercise 22-09

Presented below are the comparative income and retained earnings statements for Indigo Inc. for the years 2020 and 2021.

		2021			2020
Sales		$328,000			$264,000
Cost of sales		193,000			143,000
Gross profit		135,000			121,000
Expenses		93,400			53,300
Net income		$41,600			$67,700
Retained earnings (Jan. 1)		$112,200			$68,400
Net income		41,600			67,700
Dividends		(29,800	)		(23,900	)
Retained earnings (Dec. 31)		$124,000			$112,200

The following additional information is provided:

1.		In 2021, Indigo 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 2020 for $107,500 with an estimated useful life of 4 years and no salvage value. (The 2021 income statement contains depreciation expense of $32,250 on the assets purchased at the beginning of 2020.)
2.		In 2021, the company discovered that the ending inventory for 2020 was overstated by $25,300; ending inventory for 2021 is correctly stated.

Prepare the revised retained earnings statement for 2020 and 2021, assuming comparative statements. (Ignore income taxes.)

INDIGO INC. Retained Earnings Statement For the Year Ended 2021 2020 $ AN