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:
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Year 18
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Year 19
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Assets
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$8,000
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$7,500
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Liabilities
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3,000
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200
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Cont. Capital
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1,800
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1,900
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RE
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5,200
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5,400
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Total Liab.
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& OE
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$8,000
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$7,500
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Revenues
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$3,000
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$2,600
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Expenses
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1,900
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1,800
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Net Income
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1,100
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800
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Cumulative Effects (continued):
Here are the financial statements for Years 18-20 if the firm had always used the new accounting method:
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Year 18
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Year 19
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Year 20
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Assets
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$9,400
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$8,800
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$9,200
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Liabilities
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2,800
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?
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?
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Cont. Capital
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1,800
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1,900
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2,000
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RE
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4,800
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?____
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6,400
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Total Liab.
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& OE
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$9,400
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$8,800
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$9,200
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Revenues
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$3,400
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$4,100
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$5,100
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Expenses
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2,200
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2,600
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3,800
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Net Income
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$1,200
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$1,500
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$1,300
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Prepare data as they would appear in the Statements of Retained Earnings for years 19 and 20.
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Year 19
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Year 20
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Beginning
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RE before
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restatement
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Cumulative
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Effect
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Beginning
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RE after
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restatement
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Add: Net
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Income
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Less:
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Dividends
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Ending RE
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Cumulative Effects (continued):
Alternatively, prepare data as they would appear in the Statements of Retained Earnings for year 20 on a stand-alone basis.
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Year 20
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Beginning
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RE before
restatement
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______
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Cumulative
Effect
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______
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Beginning
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RE after
restatement
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_______
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Add: Net
Income
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Less: Dividends
Declared
Ending RE
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_______
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