A) Company A has the following income statement information for the years 2015-2017:

2015 Income 2016 Income 2017 Income

Statement as Statement as Statement

Reported Reported Totals

Construction Rev 10,000,000 12,500,000 17,000,000

Construction Costs 6,200,000 7,250,000 10,260,000

Gross Profit 3,800,000 5,250,000 6,740,000

Operating Expenses 2,100,000 2,835,000 3,219,000

Income from

Operations 1,700,000 2,415,000 3,521,000

Non-Operating Items (220,000) (171,000) (249,000)

Income from

Continuing Operations 1,480,000 2,244,000 3,272,000

Income Tax Expense 370,000 561,000 818,000

Net Income 1,110,000 1,683,000 2,454,000

During 2017, Company A changed its method of accounting for long-term contracts from completed contract to percentage of completion. This change brought Hogans accounting into line with other companies in the industry and was made due to improvements in Hogans abilities to project future costs. Company A will continue to use completed contract for tax purposes. Construction revenues and costs for 2015 and 2016 under percentage of completion would have been:

2015 2016

Construction Revenues 13,000,000 14,300,000

Construction Costs 7,650,000 8,715,000

For years prior to 2015, the change would have increased income from continuing operations by a total of $3,200,000. Company A is a calendar year company. Assume a tax rate of 25% for all years.

Required: Prepare in good form the 2017 Income Statement showing 2015 and 2016 Income Statements for comparative purposes. Additionally, prepare the retained earnings portion of the Statement of Stockholders equity for these comparative statements. (The retained earnings balance on January 1, 2015 was $3,654,000) Assume Company A declared and paid $100,000 of cash dividends each year 2015-2017.

B) Francis, Inc. is in the process of preparing their 2017 financial statements. During 2017, the following items occurred:

The company changed its method of depreciating its plant assets from double-declining balance to straight-line. This change brings Francis into line with most companies in the industry.

The company discovered an error in the 2014 ending inventory balance. The error resulted in 2014 ending inventory being understated.

The company sold a significant portion of their investment in Stout Corp. during 2017. Prior to this sale and for the previous 5 years, Francis owned 80% of the voting stock of Stout. After the sale, Francis owns 35% of the voting stock of Stout.

During 2017, the company changed its inventory method from weighted-average to FIFO. FIFO is consistent with the actual flow of goods and also with other companies in the industry.

Required: Prepare a report for the company controller explaining how each of these items should be accounted for on the 2017 books and how they will affect the 2017 financial statements and any prior statements shown for comparative purposes. The company generally reports the current year and two prior years in their annual financial statements. Give codification references that justify your answer.