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.