INCUMBIASIVE HUULUM PODlem The Porter Corporation commenced business on January 1, 20x0. Recently the corporation has had several unusual accounting problems related to the presentation of its income statement for financial reporting purposes, You have been the CPA for Porter Corporation for several years and have been asked to examine the following data. PORTER CORPORATION Income Statement For the Year Ended December 31, 20x3 Sales Cost of good sold Gross profit Selling and administrative expense Income before income tax Income tax (30%) Net income $ 9,500,000 5,900,000 3,600,000 1,300,000 2,300,000 690,000 $1,610.000 In addition, this information was provided: 1) The controller mentioned that the corporation has had difficulty in collecting on several of its receivables. For this reason, the bad debt write-off was increased from 1% to 2% of sales. The controller estimates that if this rate had been used in past periods, an additional $83,000 worth 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) Common shares outstanding at the end of 20x3 totaled 400,000. No additional shares were purchased or sold during 20x3. 3) Porter noted also that the following items were not included in the income statement a) Inventory in the amount of $72,000 was obsolete. b) A major casualty loss suffered by the corporation was partially uninsured. Cost before taxes: $180,000 (extraordinary item). 4) Retained earnings as of January 1, 20x3, was $2,800,000. Cash dividends of $700,000 were declared and paid in 20x3. 5) in January 20x3, Porter Corporation changed its method of accounting for plant assets from the straight-line method to the accelerated method (double- declining balance). The double-declining balance method was used in calculating the depreciation expense for the current year. The controller has prepared a schedule indicating what depreciation expense would have been in previous periods if the double-declining method had been used. (The effective tax rate for 20x0, 20x1 and 20x2 was 30%) Depreciation Depreciation Expense under Expense under Straight-line Double-Declining Difference 20x0 $ 75,000 $ 150,000 $ 75,000 20x1 75,000 112,500 37,500 75.000 20x2 84 375 9.375 $ 225.000 $ 346.875 $ 121.875 6) In 20x3. Porter discovered that two errors were made in previous years. First when it took a physical inventory at the end of 20x0, one of the count sheets was apparently lost. The ending inventory for 20x0 was therefore understated by $50,000. The inventory was correctly taken in 20x1, 20x2, and 20x3. Also, the corporation found that in 20x2 it had failed to record $40,000 as an expense for sales commissions. The sales commissions for 20x2 are included in 20x3 expenses. 7) In January, 20x3, Porter Corporation changed its method of accounting for inventory from LIFO to FIFO. The FIFO method was used for inventory valuation in the current year. Pretax income data is presented below: Pretax Income Using LIFO Pretax Income Using FIFO 20x0 $ 20x1 20x2 20x3 1,400,000 1,650,000 1,860,000 2,000,000 $ 1,500,000 1,750,000 2,000,000 2,160,000 No comparative financial statements will be prepared for 20x3. Instructions: Prepare the Income Statement and the Statement of Retained Earnings for Porter Corporation for the year ended December 31, 20x3 in accordance with professional pronouncements. Do not prepare notes to the financial statements