The following pretax amounts were obtained from the financial records of Watson Company for 2018:

The company€™s tax rate is 35 percent.
a. Prepare an income statement for the year ended December 31, 2018, using the multistep format.
b. Prepare a reconciliation of retained earnings for the year ended December 31, 2018.
c. What is the income tax effect associated with each item that is reported net of tax? Assuming that no taxes were owed at the beginning of 2018 and no tax payments were made during 2018, what is the total income tax liability at the end of 2018?

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Debit Credit Retained earnings (1/1/18) Sales revenues Rent revenue 847,000 1,385,000 360,000 Debit Credit Cost of goods sold 475,000 Selling and administrative expenses 289,000 Depreciation expense 250,000 Loss on accounting change 202,000 Loss on disposal of plant assets 105,000 Dividends declared 460,000