Comprehensive At the beginning of 2013, Norris Company had a deferred tax liabil

Question

Comprehensive At the beginning of 2013, Norris Company had a deferred tax liability of $6,700, 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 2012 and 2013, but in 2012 Congress enacted a 40% tax rate for 2014 and future years. Norris's accounting records show the following pretax items of financial income for 2013: income from continuing operations, $129,000 (revenues of $365,000 and expenses of $236,000); gain on disposal of Division F, $25,300; extraordinary loss, $20,700; loss from operations of discontinued Division F, $8,000; and prior period adjustment, $15,000, due to an error that understated revenue in 2012. All of these items are taxable; however, financial depreciation for 2013 on assets related to continuing operations exceeds tax depreciation by $6,600. Norris had a retained earnings balance of $179,000 on January 1, 2013, and declared and paid cash dividends of $36,000 during 2013.

Prepare Norri's 2013 statement of retained earnings.

I'll need to following to go into a spreadsheet:

Retained earnings, 1-1-13

Add: Prior period adjustment (net of taxes)

Adjusted retained earning 1-1-13

Add: net income

Less: Cash dividends

Retained earnings 12-31-13

Explanation / Answer

Debit Credit 12/31/13 Income tax Expense (difference) $40,110 Gain on Disposal of Division F ($25,300 x 30%) $7,590 Retained Earnings (15000 x 30%) $4,500 Deferred Tax Liability ($6600 x 40%) $2,640 Extraordinary Loss ($20,700 x 30%) $8,280 Loss from Operations of Discontinued Division F ($8000 x 30%) $2,400 Income Taxes Payable (calculated below) $44,160 Taxable Income Income From continuing Operations $129,000 Add: Gain on disposal of division F $25,300 Add: Decrease in Future taxable amount $6,600 Add: understated revenue $15,000 Less: Extraordinary Loss -$20,700 Less: Loss from operations of discontinued Division F -$8,000 Taxable Income $147,200 Tax Liability @ 30% $44,160 Norris Company Income Statement For Year Ended December 31, 2013 Revenues $365,000 Expenses -$236,000 Pretax Income for continuing Operations $129,000 Income Tax Expense -$40,110 $88,890 Income From Continuing Operations Less: Loss from operations of Division F ($8000-$2400) -$5,600 Add:Gain on disposal ($25,300-$7590) $17,710 $12,110 Income before Extraordinary Loss $101,000 Less: Extraordinary Loss ($20,700 -$8280) -$12,420 Net Income $88,580 Norris Company Statement of Retained Earnings For the Year Ended December 31, 2013 Retained Earnings, January 1, 2013 $179,000 Add:Prior period adjustment (15000-4500) $10,500 Adjusted retainded earnings, january 1, 2013 $189,500 Add: Net Income $88,580 $247,190 Less: Cash Dividends -$36,000 Retained Earnings, December 31,2013 $211,190

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