At the beginning of 2016, Norris Company had a deferred tax liability of $6,300, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 40% tax rate for 2017 and future years.

Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $118,200 (revenues of $352,200 and expenses of $234,000); gain on disposal of Division F, $21,000; loss from operations of discontinued Division F, $9,700; and prior period adjustment, $15,300, due to an error that understated revenue in 2015. All of these items are taxable; however, financial depreciation for 2016 on assets related to continuing operations exceeds tax depreciation by $4,900. Norris had a retained earnings balance of $162,000 on January 1, 2016, and declared and paid cash dividends of $30,600 during 2016.

Required:

1.Prepare Norris’s income tax journal entry at the end of 2016.

2.Prepare Norris’s 2016 income statement.

3.Prepare Norris’s 2016 statement of retained earnings.

4.Show the related income tax disclosures on Norris’s December 31, 2016, balance sheet

 

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DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT Dec. 31Income Tax Expense 34,970.00 Gain on Disposal of Discontinued Division 6,300.00 3 Retained Earnings 4,590.00 Deferred Tax Liability 1,960.00 Loss from Operations of Discontinued Division 2,910.00 Income Taxes Payable 44,910.00 NORRIS COMPANY Income Statement For Year Ended December 31, 2016 1 Revenues $352,200.00 2 Expenses (234,000.00) 3 Pretax income from continuing operations S118,200.00 4 Income tax expense (34,970.00) 5 Income from continuing operations S83,230.00 6 Results from discontinued operations: 7 Loss from operations of discontinued division $(6,790.00) 8 Gain on disposal of discontinued division 14,700.00 9 7,910.00 10 Net income $91,140.00 1. 2. DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT Dec. 31Income Tax Expense 34,970.00 Gain on Disposal of Discontinued Division 6,300.00 3 Retained Earnings 4,590.00 Deferred Tax Liability 1,960.00 Loss from Operations of Discontinued Division 2,910.00 Income Taxes Payable 44,910.00 NORRIS COMPANY Income Statement For Year Ended December 31, 2016 1 Revenues $352,200.00 2 Expenses (234,000.00) 3 Pretax income from continuing operations S118,200.00 4 Income tax expense (34,970.00) 5 Income from continuing operations S83,230.00 6 Results from discontinued operations: 7 Loss from operations of discontinued division $(6,790.00) 8 Gain on disposal of discontinued division 14,700.00 9 7,910.00 10 Net income $91,140.00 1. 2.