Exercise 22-7

Presented below are the comparative income statements for Denise Habbe Inc. for the years 2014 and 2015.

		2015			2014
Sales		$ 337,410			$ 267,210
Cost of sales		199,120			143,960
Gross profit		138,290			123,250
Expenses		86,110			47,470
Net income		$ 52,180			$ 75,780
Retained earnings (Jan. 1)		$ 120,380			$ 70,830
Net income		52,180			75,780
Dividends		( 27,820 )			( 26,230 )
Retained earnings (Dec. 31)		$ 144,740			$ 120,380

The following additional information is provided:

1.		In 2015, Denise Habbe 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 2014 for $ 85,500 with an estimated useful life of 4 years and no salvage value. (The 2015 income statement contains depreciation expense of $ 25,650 on the assets purchased at the beginning of 2014.)
2.		In 2015, the company discovered that the ending inventory for 2014 was overstated by $ 20,860 ; ending inventory for 2015 is correctly stated.

Prepare the revised retained earnings statement for 2014 and 2015, assuming comparative statements. (Ignore income taxes.)

DENISE HABBE INC. Retained Earnings Statement For the Year Ended 2014