At the beginning of 2013, Norris Company had a deferred tax liability of $7,000, 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, $157,500 (revenues of $391,000 and expenses of $233,500); gain on disposal of Division F, $26,100; extraordinary loss, $17,100; loss from operations of discontinued Division F, $10,100; and prior period adjustment, $16,500, 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 $4,400. Norris had a retained earnings balance of $166,000 on January 1, 2013, and declared and paid cash dividends of $45,000 during 2013.

3. Prepare Norri's 2013 statement of retained earnings.

Retained earnings, January 1, 2013 xxxx

Add: Prior period adjustment (net of taxes) xxxx

Adjusted retained earnings, January 1, 2013 xxx

Add: Net Income xxxx

Total xxxxx

Less: Cash Dividends xxxx

Retained Earnings, December 31, 2013 xxxx