Change in Accounting Principle, Change in Estimate. Jupiter Electric Company provided the following financial statement information for 2016 before considering the accounting changes listed below:
Retained Earnings, January 1, 2016…………………….. $ 49,540
Sales…………………………………………………….. 308,000
Selling and Administrative Expenses…………………… 54,000
Cash Dividends Declared………………………………. 15,000
Cost of Goods Sold (weighted- average cost)…………. 182,000
Interest Income 3,300 Interest Expense………………… 8,200
• The company failed to record $ 7,000 interest expense on a zero- coupon bond in 2012. The bonds are still outstanding.
• The company changed its accounting method to FIFO from the weighted-average method in 2016. Beginning inventory would be $ 3,000 higher and cost of goods sold $ 3,000 lower in 2016.
• Bad debt expense is included in selling, general, and administrative expenses on the income statement. Jupiter uses the percentage-of-credit-sales method of estimating bad debt expense. Credit sales in 2016 were $ 264,000. Before closing the books, Jupiter changed its estimated percentage of uncollectibles from 2% to 1%. They had previously recorded 2% in 2016 for quarterly financial statements.
• Jupiter’s tax rate is 40%.
Required
a. Prepare the journal entries to record the accounting changes made in 2016.
b. Compute the cumulative effect of the accounting changes made in 2016.
c. Prepare the multiple step income statement for Jupiter for the year ended December 31, 2016. d. Prepare the footnote disclosures required for the accounting changes made in 2016.
e. Prepare the retained earnings column of the statement of stockholders’ equity for the year ended December 31, 2016.