Chapter 21, Problem 21.6P

Change in Estimate, Inventory, Bad Debt Expense. Rocket Man, 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 accounts receivable 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 Accounts Receivable balance is $600,000 and the Allowance for Uncollectible Accounts (before adjustment) was $10,000 credit balance

Required

1. a. Assuming a tax rate of 40% prepare the multiple-step income statement for Rocket Man for the year ended December 31. 2018.
2. b. Compute the cumulative effect of the accounting changes made in 2018.
3. c. Prepare the journal entries to record the accounting changes made in 2018
4. d. Prepare the footnote disclosures required for the accounting changes made in 2018
5. e. Prepare the retained earnings column of the statement of stockholders equity for the year ended December 31. 2018