Exam 4: Reporting Financial Performance

Multiple-step income statement Presented below is information that relates to Muffin 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 Muffin common shares...................... 60,000 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.

When expenses are presented by function in the income statement,

Statement of changes in equity Tote Ltd. reported the following balances at January 1, 2020: Common shares................................................................ \3 70,000 Retained earnings............................................................. 70,000 Accumulated other comprehensive income......................... 71,000 During the year Tote earned net income of $310,000 and generated other comprehensive income of $64,000. Instructions Prepare a statement of shareholders' equity for the year ended December 31, 2020.

Sesame Corp.'s adjusted trial balance at December 31, 2020 included the following: Sales..................................................................... \1 70,000 Cost of goods sold.................................................. \7 0,000 Administrative expenses........................................... 28,000 Loss on sale of equipment........................................ 11,000 Sales commissions.................................................... 9,000 Interest revenue....................................................... 6,000 Loss of warehouse due to flood.................................. 15,000 Loss from operation of discontinued division.............. 24,000 Bad debt expense....................................................... Totals....................................................................... Sesame uses the perpetual system, and their income tax rate is 30%. On Sesame’s multiple-step income statement for 2020, income from discontinued operations is

Income statement and retained earnings statement Macaroon Corporation's capital structure consists of 20,000 common shares. At December 31, 2020 an analysis of the accounts and discussions with company officials revealed the following information: Sales.............................................................................................. Purchase discounts........................................................................ Purchases..................................................................................... Earthquake loss (net of \ 18,000 tax)........................................... Selling expenses........................................................................... Cash........................................................................................... Accounts receivable.................................................................. Common shares........................................................................ Accumulated depreciation....................................................... Dividend revenue..................................................................... Inventory, January 1, 2020....................................................... Inventory, December 31, 2020 ................................................. Unearned service revenue....................................................... Accrued interest payable....................................................... Land...................................................................................... Patents.................................................................................. Retained earnings, January 1, 2020......................................... Interest expense..................................................................... Cumulative effect of change from straight-line to accelerated depreciation (net of \ 15,000 tax)........................................... General and administrative expenses.................................... Dividends declared............................................................... Allowance for doubtful accounts .......................................... Notes payable (maturity July 1, 2023).................................. Machinery and equipment................................................... Materials and supplies.......................................................... Accounts payable................................................................. \ 1,200,000 18,000 720,000 42,000 128,000 60,000 90,000 200,000 180,000 18,000 152,000 125,000 4,400 1,000 370,000 100,000 270,000 17,000 35,000 160,000 29,000 5,000 200,000 450,000 40,000 60,000 Unless indicated otherwise, you may assume a 30% income tax rate. Instructions a) Prepare, in good form, a multiple-step income statement. b) Prepare, in good form, a retained earnings statement.

Income statement information about future cash flows How might stakeholders use the income statement to help assess a company's expected cash inflows?

Assuming that none of the errors were detected or corrected, by what amount will 2020 income before taxes be overstated or understated?

Low-cost/high-volume strategy versus cost differentiation strategy Explain the difference between a low-cost/high-volume strategy and a cost differentiation strategy.

The OSC and non-GAAP measures In an effort to curb to potential confusion created by non-GAAP earnings discussed in Exercise 4-111, the OSC has issued a staff notice on these disclosures. Briefly explain what this notice states issuers should do. Why do you think the OSC is particularly interested in streamlining these disclosures?

Use the following information for the following questions: Ignore taxes. Peach Inc.'s financial statements for the years 2019 and 2020 contained errors as follows: Ending inventory Depreciation Expense \ 3,000 understated 5,500 overstated \ 5,000 overstated 3,500 overstated -Assuming that the errors made in 2019 were corrected, but that the errors made in 2020 were not detected, by what amount will 2020 income before taxes be overstated or understated?

The following information is available for Excelsior Corp for 2020: Payment for goods during year................................. \1 04,000 Accounts payable, beginning ................................... 14,000 Inventory, beginning ................................................. 28,000 Accounts payable, ending........................................ 12,600 Inventory, ending.................................................... 16,200 Cost of goods sold for 2020 is

Comprehensive income Sunshine Corporation had the following balances at December 31, 2020 (in thousands): preferred shares $3,012; common shares $4,718; contributed surplus $1,750; retained earnings $16,791; and accumulated other comprehensive income $514. During the year ended December 31, 2020, the company earned net income of $3,613,000, sold common shares of $30,000, and paid out dividends of $14,000 and $5,000 to preferred and common shareholders, respectively. Prepare a statement of changes in equity for the year ended December 31, 2020, as well as the shareholders' equity section of the Sunshine Corporation balance sheet as at December 31, 2020.

Compared to the accrual basis of accounting, the cash basis of accounting overstates income by the net increase during the accounting period of the Account Accrued Receivable Expences Payable a) No No b) No Yes c) Yes No d) Yes Yes

Which of the following is a change in accounting principle?

Value creation refers to

Multiple-step income statement Presented below is information related to Pastry Inc. Retained earnings, December 31, 2019 ......................................................... \6 50,000 Sales ............................................................................................................ 1,400,000 Selling and administrative expenses ............................................................. 240,000 Hurricane loss (pre-tax) on plant.................................................................. 250,000 Cash dividends declared on common shares.................................................. 33,600 Cost of goods sold........................................................................................ 820,000 Gain resulting from calculation error on depreciation charge in 2019 (pre-tax) .............................................................................. 520,000 Other revenue.............................................................................................. 60,000 Other expenses............................................................................................ 50,000 Instructions In good form, prepare a multiple-step income statement for the year 2020. Assume a 20% tax rate and that 50,000 common shares were outstanding during the year. Pastry is a private corporation following ASPE.

Single-step income statement The information below relates to the operations of Konun Corporation for the year ended December 31, 2020: Cost of goods sold \ 84,500 Interest expense 585 Sales returns and allowances 2,240 Accounts payable 30,032 Sales discounts 960 Depreciation expense 71,148 Sales revenue 245,586 Salaries and wages 40,895 Prepaid expenses 875 Rent expense 9,500 Loss due to fire 2,092 Rental revenue 6,000 Additional information: -The effective tax rate is 30%. -Depreciation expense: 60% administrative expense and 40% selling expense -Salaries and wages: 35% administrative expense and 65% selling expense -Rent expense: 75% administrative expense and 25% selling expense Prepare a single-step income statement in good form by nature (round to the nearest dollar).

All-inclusive income includes all of the following EXCEPT

Portland Corporation reports the following information: Correction of understatement of depreciation expense in prior years, net of tax........................................ \1 ,376,000 Dividends declared.............................................. 1,024,000 Net income......................................................... 3,200,000 Retained earnings, January 1,2020 , as reported........................ 6,400,000 Portland should report retained earnings at January 1, 2020, as adjusted at

Regarding earnings per share (EPS) data