Multiple-Step Income Statement
Presented Below Is Information That Relates to Muffin

question 81

Essay

Multiple-step income statement
Presented below is information that relates to Muffin Limited for 2020:
$\begin{array}{llcc} \text { Collections of credit sales...........................................} &\$1,100,000 \\ \text { Retained earnings, January 1, 2020............................. } &800,000\\ \text { Sales............................................................................ } &1,900,000\\ \text { Selling and administrative expenses............................. } &290,000\\ \text {Casualty loss (pre-tax).................................................. } &350,000\\ \text { Cash dividends declared on common shares...................} &34,000\\ \text {Cost of goods sold........................................................... } &1,100,000 \\ \text {Loss resulting from calculation error on depreciation charge in 2018 (pre-tax)........ } &460,000\\ \text {Other revenues.............................................................. } &180,000\\ \text {Other expenses............................................................... } &120,000\\ \text {Loss from early extinguishment of debt (pre-tax)........... } &340,000\\ \text {Gain from transactions in foreign currencies (pre-tax)....... } &220,000\\ \text {Proceeds from sale of Muffin common shares...................... } &60,000\\\end{array}$

Additional information:
1. Early in 2020, Muffin 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, Muffin 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. Muffin 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%.
Instructions
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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Definitions:

Lessor's Implicit Rate

The interest rate used in lease agreements, assumed by the lessor, that when applied to the lease payments, equals the fair value of the leased asset.

Ordinary Annuity

A series of equal payments made at the end of consecutive periods over a fixed length of time, such as monthly rent or annual scholarship allowances.

Present Value Factors

Multipliers used to calculate the present value of a sum to be received in the future by accounting for time value of money.

Minimum Rental Payments

The lowest amount of payment due under a lease agreement, which includes both the principal and interest components for a lease.