Question

The ledger of Crane Corporation at November 30, 2021, contains the following summary data:

Cash dividends—common
$60,500 Operating expenses $1,101,000
Cash dividends—preferred
25,000 Other comprehensive income—loss on
equity investments (before income tax)
71,000
Common shares
315,500 Rent revenue 39,000
Cost of goods sold
7,190,000 Preferred shares ($5 noncumulative) 381,000
Depreciation expense
341,000
Retained earnings, December 1, 2020 732,000
Sales
9,011,000

Your analysis reveals the following additional information:

1.
The company has a 25% income tax rate.
2.
The communications devices division was discontinued on August 31. The profit from operations for the division up to that day was $15,200 before income tax. The division was sold at a loss of $70,500 before income tax.
3.
There were 200,000 common and 5,000 preferred shares issued on December 1, 2020, with no changes during the year.

part
(a)
Prepare a multiple-step income statement for the year.

Answer 1

Multi - step Income statement: Unlike single step incoem statement, multi step income statement segregates and shows the detailed values of the operating and non operating expenses, continuing operations and discontinuing operations of the business.

Multi step Income Statement
Particulars	Amount	Amount
Sales		$9,011,000
Cost of Goods Sold		($7,190,000)
Gross Profit		$1,821,000
Operating Expenses:	$1,101,000
Total Operating Expenses		($1,101,000)
Operating income		$720,000
Other income :
Rent Income		$39,000
Income from continuing operations before income taxes		$759,000
Income tax expense ($759,000 * 25%)		($189,750)
Income from continuing operations before prefered dividends		$569,000
Prefered dividends		($25,000)
Income from continuing operations after prefered dividends		$544,000
Discontinued operations:
Profit from discounted operations	$15,200
Loss on disposal of the division	($70,500)
Loss from discontinued operations	($55,300)
Income tax benefit ($55,300 * 25%)	$13,825
Net Loss from discontinued operations		($41,475)
Net Income		$502,525
Comprehensive income(Loss)
Loss on equity investment	($71,000)
Tax Benefit ($71,000 * 25%)	$17,750	($53,250)
Total Comprehensive Income		$449,275

Note: Operating Expenses includes depreciation expense