AyayaiCorporation began operations on January 1, 2017. Recently the corporation has had several unusual accounting problems related to the presentation of its income statement for financial reporting purposes. The company follows ASPE.

You are the CPA forAyayaiand have been asked to examine the following data:

AYAYAICORPORATION

Income Statement

For the Year Ended December 31, 2020Sales revenue

$9,200,000Cost of goods sold5,720,000Gross profit3,480,000Selling and administrative expense1,258,000Income before income tax2,222,000Income tax expense (40%)888,800Net income$1,333,200

This additional information was also provided:

1.The controller mentioned that the corporation has had difficulty collecting certain receivables. For this reason, the bad debt accrual was increased from1% to2% of sales revenue. The controller estimates that, if this rate had been used in past periods, an additional $82,700worth of expense would have been charged. The bad debt expense for the current period was calculated using the new rate and is part of selling and administrative expense.2.There were300,000common shares outstanding at the end of 2020. No additional shares were purchased or sold in 2020.3.The following items were not included in the income statement:

Inventory in the amount of $110,000was obsolete.The company announced plans to dispose of a recognized segment. For 2020, the segment had a loss, net of tax, of $181,200.4.Retained earnings as at January 1, 2020, were $3million. Cash dividends of $700,000were paid in 2020.5.In January 2020,Ayayaichanged its method of depreciating plant assets from the straight-line method to the declining-balance method to present more relevant information. The controller has prepared a schedule that shows what the depreciation expense would have been in previous periods if the declining-balance method had been used.

Depreciation Expense under

Straight-LineDepreciation Expense under

Declining-Balance

Difference2017$76,000$152,000$76,000201876,000114,00038,000201976,00085,5009,500$228,000$351,500$123,5006.In 2020,Ayayaidiscovered that in 2019 it had failed to record $10,000as an expense for sales commissions. The sales commissions for 2019 were included in the 2020 expenses.

(a)

Prepare the income statement forAyayaiCorporation. The effective tax rate for past years was40%. (Hint: a change in depreciation method is considered a change in estimate, not a change in accounting policy.)