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At the beginning of 2016, Norris Company had a deferred tax liability of $6,400, because of...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,400, 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 39% 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, $121,600 (revenues of $353,400 and expenses of $231,800); gain on disposal of Division F, $24,100; loss from operations of discontinued Division F, $11,900; and prior period adjustment, $17,000, 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 $4,500. Norris had a retained earnings balance of $161,000 on January 1, 2016, and declared and paid cash dividends of $32,700 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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1. Norris income tax journal entry at the end of 2016
Taxable income
Income from continuing operations $121,600
Gain on disposal of Division F $24,100
Loss from operation of discontinued Division F ($11,900)
Prior period adjustment $17,000
Lesser tax depreciation than financial depreciation $4,500
Total $155,300
Tax liability
$155,300 x 30% $46,590
Journal entry
Income Tax expenses $36,075
Gain on Disposal of Division F (24100 x 30%) $7,230
Retained Earnings (17000 x 30%) $5,100
Deffered Tax liability (4500 x 39%) $1,755
           Loss from operation of discontinued Division F $3,570
           Income tax payable $46,590
Deferred tax liability is related to future thus tax rate applied is 39%
2. Norris 2016 Income statement
Revenue $353,400
Expenses $231,800
Pretax income from continuing operations $121,600
Income tax expenses $36,075
Income from Continuing operations $85,525
Result from discontinued operations
Loss from operation of discontinued Division F ($8,330)
Gain on disposal of Division F $16,870
(Net of income taxes)
Net Income $94,065
3. Norris 2016 statement of Retained Earnings
Retained Earning at the beginning of the year $161,000
Add: Prior period adjustment (net of income tax) $11,900
Adjusted Retained earnings, January 1,2016 $172,900
Add: Net Income $94,065
Less: Dividend paid in 2016 $32,700
Retained Earning at the end of the year $234,265
4. Income tax disclosures on Norris 2016 Balance Sheet
Current Liabilities:
Income Tax payable $46,590
Non Current Liabilities
Deferred Tax Liability $4,645
($6400 beginning deferred tax liability - $1755 decrease)

ekkarill92 answered 1 year ago
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