The Delta Company uses the completed-contract method of accounting for long-term construction contracts. The company started business in 2005 and prepared the following income statements:

The company changes to the percentage-of-completion method at the beginning of 2007. It determines the construction revenue and expense amounts under the percentage-of-completion method to be as follows:

The other expenses remain unchanged for 2005 and 2006, and are $80,000 in 2007. The company has not paid dividends on its 100,000 common shares outstanding. With the 2007 financial statements the company issues comparative statements for the previous two years. Under the completed-contract method, construction revenue and construction expense would be $600,000 and $280,000, respectively, in 2007. The company uses the percentage-of-completion method for income tax purposes.
Required
Prepare the income statements and the statements of retained earnings for 2007. Notes to the financial statements are notnecessary.

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2005 Construction revenue Construction expense Other expenses Income before income taxes Income tax expense (30%) Net income $100,000 (40,000) (50,000) $ 10,000 2006 $300,000 (130,000) (70,000 100,000 (30,000) $ 70,000 3,000) S 7,000 Earnings per share S 0.07 S 0.70 2005 Construction revenue Construction expense 2006 $420,000 182,000 2007 $900,000 420,000 $200,000 80,000