Incorporated provided the following financial statement information for 2018:Credit sales$2,500,000R

Incorporated provided the following financial statement information for 2018:

Credit sales

$2,500,000

Retained earnings, January 1, 2018

1,600,000

Sales

3,000,000

Selling and administrative expenses

480,000

Restructuring gain (pretax)

720,000

Cash dividends declared

190,000

Cost of goods sold

1,755,000

Error correction: 2013 rent was unpaid and unrecorded

40,000

Interest income

480,000

Interest expense

820,000

Gain on sale of investments (pre-tax)

500,000

• On January 1, 2018, Rocket Man changed its plant and equipment accounting for depreciation from the double-declining balance method to the straight-line method. Rocket Man purchased the assets on January 1, 2017 for $600,000; they had no scrap value and useful lives of 10 years. The balance in the accumulated depreciation account at January 1, 2018 amounted to $120,000. Rocket Man recorded the straight-line depreciation expense of $53,333 in 2018 and included it in the $480,000 reported for selling and administrative expenses. Depreciation expense would have been $96,000 if Rocket Man still used the double-declining balance method.

• Bad debt expense for 2018 of $50,000 is included in selling, general, and administrative expenses on the income statement. Rocket Man uses the percentage of method of estimating bad debt expense. The estimated percentage was 5% in both 2016 and 2017 but changed to 10% in 2018. At December 31, 2018, the balance is $600,000, and the Allowance for Uncollectible Accounts (before adjustment) was $ 10,000 credit balance.


Required

a. Assuming a tax rate of 40%, prepare the multiple-step income statement for Rocket Man for the year ended December 31, 2018.

b. Compute the cumulative effect of the accounting changes made in 2018.

c. Prepare the journal entries to record the accounting changes made in 2018.

d. Prepare the footnote disclosures required for the accounting changes made in 2018. 

e. Prepare the retained earnings column of the statement of stockholders’ equity for the year ended December 31, 2018.

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