Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2025 and 2026.

The following additional information is provided:

1. In 2026, Denise Habbe 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 2025 for $100,000 with an estimated useful life of 4 years and no salvage value. (The 2026 income statement contains depreciation expense of $30,000 on the assets purchased at the beginning of 2025.)

2. In 2026, the company discovered that the ending inventory for 2025 was overstated by $24,000; ending inventory for 2026 is correctly stated.

Instructions

Prepare the revised retained earnings statement for 2025 and 2026, assuming comparative statements.

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Sales Cost of sales Gross profit Expenses Net income Retained earnings (Jan. 1) Net income Dividends Retained earnings (Dec. 31) 2026 $340,000 200,000 140,000 88,000 $ 52,000 $125,000 52,000 (30,000) $147,000 2025 $270,000 142,000 128,000 50,000 $ 78,000 $72,000 78,000 (25,000) $125,000