The income statement for 2006 and balance sheet on December 31, 2006

for Shahruz Pinole Co. appear below:

Shahruz Pinole Co.

Income Statement

For the Year Ended December 31, 2006

Sales $400,000

Cost of sales 250,000

Gross profit 150,000

Operating expenses 50,000

Net income 100,000

Shahruz Pinole Co.

Balance Sheet

December 31, 2006

Assets Liabilities and Stockholders' Equity

Cash $70,000 Notes payable $30,000

Accounts receivable (net) 50,000 Accounts payable 60,000

Inventory 80,000 Paid-in capital 410,000

Land 500,000 Retained earnings 200,000

Total liabilities and

Total assets $700,000 stockholders' equity $700,000

Additional information:

1. The general price indexes for selected dates are given below January 1, 2003 105 June 30, 2005 120 December 31 2006 140 Average for 2006 130

2. The company was founded on January 1, 2003. All capital stock was issued at that time

3. One-half of the land was acquired on January 1, 2003. The other one-half was acquired on June 30,2005.

4. The purchasing power loss for 2006 is $10,000

5. Ending inventory consists of units purchased uniformly in 2006

6. There was no beginning inventory for 2006. Cost of sales consists of the units purchased uniformly throughout 2006

Required:

(1) Prepare a constant dollar income statement for Shahruz Pinole Co. for the year ended December 31, 2006

(2) Prepare a constant dollar balance sheet for Shahruz Pinole Co. on December 31, 2006. (Hint: Retained earning is balancing item.)