Question 2: Multi-Step Income Statement (20 marks)

Presented below is information which relates to Malfour for 2017:

Collections of credit sales - .................................... $1,100,000

Retained earnings, January 1, 2017 ............................ 800,000

Sales .......................................................................... 1,900,000

Selling and administrative expenses .............................. 290,000

Casualty loss (pre-tax) ................................................... 350,000

Cash dividends declared on common stock ...................... 34,000

Cost of goods sold ........................................................... 1,100,000

Loss resulting from calculation error on depreciation charge in 2015 (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 Malfour common shares ...................... 60,000

Additional information:

1. On September 1, 2017, Malfour 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.

2. 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 2015 and 2016, the percentage was 0.5 %. In 2017, the percentage was changed to 1%.

3. Early in 2017, Malfour 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 2012 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.

Required:

a) In good form, prepare multiple-step income statement for 2017. Assume a 20% income tax rate and that 20,000 common shares were outstanding during the year.

b) Prepare statement of Retained earnings

Note: Malfour Limited follows ASPE, read the question carefully as some information does not always apply to the question at hand.