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    Lee Corporation: Statement of changes in owner's equity and notes

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    Lee Corporation, a U.S. company, began operations on January 1, 2004.
    During its first 3 years of operations, Lee reported net income and declared dividends as follows.

    Net income Dividends declared
    2004 $ 40,000 $ -0-
    2005 125,000 50,000
    2006 160,000 50,000

    The following information relates to 2007:

    Income before income tax $240,000
    Prior period adjustment: understatement of 2005 depreciation expense (before taxes) $ 25,000
    Cumulative decrease in income from change in inventory methods (before taxes) $ 35,000
    Dividends declared (of this amount, $25,000 will be paid on January 15, 2008) $100,000
    Effective tax rate 40%

    Prepare a statement of changes in owner's equity and accompanying notes appropriate to the section.

    Note: Record the necessary journal entries before attempting to calculate other comprehensive income.

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    The solution examines the statement of changes in owner's equity for Lee Corporation.

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