At the beginning of 2016, Norris Company had a deferred tax liability of $6,300, 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 40% 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, $118,200 (revenues of $352,200 and expenses of $234,000); gain on disposal of Division F, $21,000; loss from operations of discontinued Division F, $9,700; and prior period adjustment, $15,300, 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 $4,900. Norris had a retained earnings balance of $162,000 on January 1, 2016, and declared and paid cash dividends of $30,600 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.

Chart of Accounts

CHART OF ACCOUNTSNorris CompanyGeneral LedgerASSETS111Cash121Accounts Receivable141Inventory152Prepaid Insurance181Equipment198Accumulated Depreciation

LIABILITIES211Accounts Payable231Salaries Payable250Unearned Revenue260Deferred Tax Liability261Income Taxes Payable

EQUITY311Common Stock331Retained Earnings

REVENUE411Sales Revenue882Gain on Disposal of Discontinued Division

EXPENSES500Cost of Goods Sold511Insurance Expense512Utilities Expense521Salaries Expense532Bad Debt Expense540Interest Expense541Depreciation Expense559Miscellaneous Expenses892Loss from Operations of Discontinued Division910Income Tax Expense

General Journal

Prepare Norris's income tax journal entry on December 31, 2016.

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GENERAL JOURNAL

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Labels and Amount Descriptions

LabelsCurrent AssetsCurrent LiabilitiesNoncurrent LiabilitiesNoncurrent AssetsResults from discontinued operationsAmount DescriptionsAdjusted retained earnings, January 1, 2016Cash dividendsDeferred income taxesExpensesIncome from continuing operationsNet incomePrior period adjustmentPretax income from continuing operationsRetained earnings, December 31, 2016RevenuesRetained earnings, January 1, 2016

Income Statement

Prepare Norris's 2016 income statement.Additional Instructions

NORRIS COMPANY

Income Statement

For Year Ended December 31, 2016

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Retained Earnings

Prepare Norris's 2016 statement of retained earnings.Additional Instructions

NORRIS COMPANY

Statement of Retained Earnings

For Year Ended December 31, 2016

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Balance Sheet

Show the related income tax disclosures on Norris's December 31, 2016, balance sheet.Additional Instructions

NORRIS COMPANY

Partial Balance Sheet

December 31, 2016

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