Chapter $18$ Homework

Disclosure of Intraperiod Tax Allocation

Lester Corporation reports $$119,000$ of both pretax accounting "income" and taxable income in Year $4.$ In addition to income from continuing operations $($of which revenues are $$500,000),$ included in this "income" are a $$17,000$ loss from operations of discontinued Division W$,$ a $$15,000$ gain on the disposal of Division $W,$ and a $$14,000$ correction of an error due to the understatement of bad debt expense in Year $3.$ Lester is subject to a $20\%$ tax rate on the first $$50,000$ of income and a rate of $25\%$ on income in excess of $$50,000.$

Required:

Income Statement

For Year Ended December $31,$ Year $4$

Revenues

$

$500,000$

$

Pretax income from continuing operations

Income tax expense $$

Income from continuing operations grad

Chapter $18$ Homework

$2.$ Prepare Lester's Year $4$ statement of retained earnings. $($Assume a beginning retained earnings balance of $$191,000$ and cash dividends during Year $4$ amounting to $$65,000.)$

LESTER CORPORATION

Statement of Retained Earnings

For Year Ended December $31,$ Year $4$

Retained earnings, January $1,$ Year $4$

Less: Prior period adjustment, understatement of Year $3$ bad debt expense $($net income tax credit$)$

Adjusted retained earnings, January $1,$ Year $4$

$$

Retained earnings, December $31,$ Year $4$

$