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	_______