Reference no: EM132891147
Problem - At the beginning of 2019, 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 2018 and 2019, but in 2018 Congress enacted a 40% tax rate for 2020 and future years.
Norris's accounting records show the following pretax items of financial income for 2019: income from continuing operations, $120,000 (revenues of $352,000 and expenses of $232,000); gain on disposal of Division F, $23,000; loss from operations of discontinued Division F, $10,000; and prior period adjustment, $15,000, due to an error that understated revenue in 2018. All of these items are taxable; however, financial depreciation for 2019 on assets related to continuing operations exceeds tax depreciation by $5,000. Norris had a retained earnings balance of $161,000 on January 1, 2019, and declared and paid cash dividends of $32,000 during 2019.
Required -
1. Prepare Norris's income tax journal entry at the end of 2019.
2. Prepare Norris's 2019 income statement.
3. Prepare Norris's 2019 statement of retained earnings.
4. Show the related income tax disclosures on Norris's December 31, 2019, balance sheet.
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