Reference no: EM133101176
Question - Presented below is information that relates to Cupcake Limited for 2020:
Collections of credit sales $1,100,000
Retained earnings, January 1, 2020 800,000
Sales 1,900,000
Selling and administrative expenses 290,000
Casualty loss (pre-tax) 350,000
Cash dividends declared on common shares 34,000
Cost of goods sold 1,100,000
Loss resulting from calculation error on depreciation charge in 2018 (pre-tax) 460,000
Other revenues 180,000
Other expenses 120,000
Loss from early extinguishment of debt (pre-tax) 340,000
Gain from transactions in foreign currencies (pre-tax) 220,000
Proceeds from sale of Cupcake common shares 60,000
Additional information:
1. Early in 2020, Cupcake changed depreciation methods for its plant assets from the double- declining-balance to the straight-line method. The affected assets were purchased at the beginning of 2015 for $200,000, had no residual value, and had useful lives of 10 years. Depreciation expense of $20,000 is included in the selling and administrative expenses of $290,000.
2. On September 1, 2020, Cupcake sold one of its segments (product line) to Best Industries for a gain (pre-tax) of $550,000. During the period January 1 to August 31, the discontinued segment incurred an operating loss (pre-tax) of $480,000. This loss is not included in any of the numbers shown above.
3. Included in selling and administrative expenses is bad debts expense of $19,000. Cupcake bases its bad debts expense upon a percentage of sales. In 2018 and 2019, the percentage was 0.5 %. In 2020, the percentage was changed to 1%.
Required - In good form, prepare a multiple-step income statement for 2020. Assume a 20% income tax rate and that 20,000 common shares were outstanding during the year.
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