Answer and Explanation:
The Preparation of multiple-step income statement for 2020 is presented below:-
Vaughn Corporation
Multiple Step Income statement
For the Year Ended December 31, 2020
Sales Revenue
Net Sales $1,404,000
Less: Cost of good sold ($842,400)
Gross Profit $561,600
Operating expenses:
Selling expenses $70,200
Administrative expenses $51,840
Total operating expenses ($122,040)
Operating Income $439,560
Other revenue
Dividend Revenue $21,600
Interest Revenue $7,560 $29,160
Total $468,720
Other Expense and losses
Write-off of inventory due to obsolescence ($86,400)
Income before taxes and extraordinary item $382,320
Less: income tax [382320 × 20%] ($76,464)
Income before extraordinary item $305,856
Extraordinary Item
Casualty loss $54,000
Less: Applicable tax deduction ($10,800) $43,200
(54,000 × 20%)
Net Income $262,656
Earnings Per Share of Common Stock
Income before extraordinary item $4.66
(305,856 ÷ 65,664]
Extraordinary item ($0.66)
[43,200 ÷ 65,664]
Net Income $4.00
2. The preparation of retained earnings is shown below:-
Vaughn Corporation
Retained earnings
For the Year Ended December 31, 2020
Beginning retained earnings $1,058,400
Less: Depreciation error ($59,400 × 80% $57,520
Retained earnings as on Jan 1 $1,000,880
Add: Net income $262,656
Less: Dividend declared $48,600
Retained earnings Dec 31 $1,214,936
