The Wright Company reports the following information for the year ended December 31, 2007:
Pretax income from continuing operations ...........$160,000a
Pretax gain from sale of investment (extraordinary item) .......30,000
Pretax income from operations of discontinued Division M .....27,000
Pretax loss on disposal of Division M ..............(45,000)
Pretax correction of error in understating depreciation in 2006 ....(8,000)
Retained earnings, January 1, 2007 ..............410,000
Cash dividends during 2007 ..................48,000
Total income tax .....................36,000b
a. Of this amount, revenues are $400,000 and expenses are $240,000.
b. Of this amount $7,500 relates to the extraordinary item; $6,750 relates to the pretax income from the operations of discontinued Division M; the pretax loss on the disposal of Division M resulted in an income tax savings of $11,250; and the pretax correction of the depreciation error resulted in an income tax savings of $2,000.
Required
1. Prepare the year-end journal entry necessary to record the 2007 intraperiod income tax allocation in regard to the preceding information.
2. Prepare Wright’s 2007 income statement and statement of retained earnings.