E4—8 (Changing accounting methods and net v income) The net income amounts for Hauser and Bradley over the four-year period beginning in 1994 follow. 1994 1995 1996 1997 $21,000 $24,000 $23,000 $29,000 After further examination of the financial report, you note that Hauser and Bradley made accounting method changes in 1995 and 1997, which affected net income in those periods. In 1995 the company changed depreciation methods. This change increased the book value of its fixed assets in each subsequent year by $5,000. In 1997 the company adopted a new inventory method that increased the book value of the inventory by $9,000. REQUIRED:

a. Calculate the effect of each of these changes on net income in the year of the change.

b. Prepare a chart that compares net income across the four-year period, assuming no accounting changes were made by Hauser and Bradley. How would your assessment of the company’s performance change after you learned of the accounting method changes? Chapter 4 The Measurement Fundamentals of Financial Accounting 1 69