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Presented below are the comparative income and retained earnings statements for Carla Inc. for the years 2017 and 2018 2018 2017 $328,000 212,000 116,000 87,100 $28,900 $101,900 28,900 $255,000 151,000 104,000 50,700 $53,300 $75,700 53,300 (27,100) $101,900 Sales Cost of sales Gross profit Net income Retained ernings Dan. 1) Net income Dividends Retained earnings (Dec. 31) (31,300) $99,500 The following additional information is provided: 1. In 2018, Carla 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 2017 for $95,000 with an 2. In 2018, the company discovered that the ending inventory for 2017 was overstated by $22,800; ending inventory for 2018 is correctly stated. Prepare the revised retained earnings statement for 2017 and 2018, assuming comparative statements. (Ignore income taxes.) estimated useful life of 4 years and no salvage value. (The 2018 income statement contains depreciation expense of $28,500 on the assets purchased at the beginning of 2017.) CARLA INC. Retained Earnings Statement For the Year Ended 2018 2017

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Retained Earnings Statement Adjustments in depreciation 2018 2017 Unadjusted retained earnings on Jan 1 less- Correction error of inventory overstatement revised retained eaming balance Add- Revised Net income Less Dividend Retained earning December 31 101,900 22,800 79,100 61,200 31,300 109,000 75,700 Cost on January 2017 Depreciation in 2017 (95000-4/10) book value on Jan 18 95,000 38,000 57,000 75,700 30,500 27,100 79,100 depreciation as per new method in 2018 (57000/3) Depreciation charged in 2018 Excess de 19,000 28,500 9,500 ation charged in 2018 Net income less- Inventory overstated Revised net income of 2017 53,300 22,800 30,500 Net income add- Opening Inventory overstated add- Revised net income of 2017 28,900 22,800 9,500 61,200 depreciation overstated

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