Cumulative effects:

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Reference no: EM13843691

Cumulative Effects:

Merle Company has operated for several years and always shows two years of financial statements for users to make better conclusions about trends.  In Year 20, the firm changed one of its accounting methods.  The change was from a GAAP method to a GAAP method.  This change in method is properly accounted for retrospectively.

Here are the financial statements for Years 18 and 19 that were correct using the old accounting method:

 

Year 18

 

Year 19

 

 

 

 

Assets

$8,000

 

$7,500

 

 

 

 

Liabilities

3,000

 

200

 

 

 

 

Cont. Capital

1,800

 

1,900

RE

5,200

 

5,400

 

 

 

 

Total Liab.

 

 

 

& OE

$8,000

 

$7,500

 

 

 

 

 

 

 

 

Revenues

$3,000

 

$2,600

 

 

 

 

Expenses

1,900

 

1,800

 

 

 

 

Net Income

1,100

 

800

Cumulative Effects (continued):

Here are the financial statements for Years 18-20 if the firm had always used the new accounting method:

 

Year 18

 

Year 19

 

Year 20

 

 

 

 

 

 

Assets

$9,400

 

$8,800

 

$9,200

 

 

 

 

 

 

Liabilities

2,800

 

?

 

?

 

 

 

 

 

 

Cont. Capital

1,800

 

1,900

 

2,000

RE

4,800

 

?____

 

    6,400

 

 

 

 

 

 

Total Liab.

 

 

 

 

 

& OE

$9,400

 

$8,800

 

$9,200

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$3,400

 

$4,100

 

$5,100

 

 

 

 

 

 

Expenses

2,200

 

2,600

 

3,800

 

 

 

 

 

 

Net Income

$1,200

 

$1,500

 

$1,300

Prepare data as they would appear in the Statements of Retained Earnings for years 19 and 20.

 

Year 19

 

Year 20

Beginning

 

 

 

RE before

 

 

 

restatement

 

 

 

 

 

 

 

Cumulative

 

 

 

Effect

 

 

 

 

 

 

 

Beginning

 

 

 

RE after

 

 

 

restatement

 

 

 

 

 

 

 

Add: Net

 

 

 

Income

 

 

 

 

 

 

 

Less:

 

 

 

Dividends

 

 

 

 

 

 

 

Ending RE

 

 

 

Cumulative Effects (continued):

Alternatively, prepare data as they would appear in the Statements of Retained Earnings for year 20 on a stand-alone basis.

 

Year 20

 

 

Beginning

 

 

 

RE before

restatement

______

 

 

 

 

 

 

Cumulative

Effect

______

 

 

 

 

 

 

Beginning

 

 

 

RE after

restatement

_______

 

 

 

 

 

 

Add: Net

Income

 

 

 

 

 

 

 

Less: Dividends

Declared

Ending RE

_______

 

 

 

 

 

 

Reference no: EM13843691

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