Disclosure of Intraperiod Tax Allocation

Lester Corporation reports $119,000 of both pretax accounting "income" and taxable income in 2016. In addition to income from continuing operations (of which revenues are $500,000), included in this "income" is 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 2015. 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:

1. Show how this information is disclosed on Lester's 2016 income statement.

LESTER CORPORATION
Income Statement
For Year Ended December 31, 2016
Revenues		$
Expenses
Pretax income from continuing operations		$
Income tax expense
Income from continuing operations		$
Results from discontinued operations:
Loss from operations of discontinued Division W (net of income tax credit)	$
Gain on disposal of Division W (net of income taxes)
Net income		$

2. Prepare Lester's 2016 statement of retained earnings. (Assume a beginning retained earnings balance of $191,000 and cash dividends during 2016 amounting to $65,000.)

LESTER CORPORATION
Statement of Retained Earnings
For Year Ended December 31, 2016
Retained earnings, January 1, 2016	$
Less: Prior period adjustment, understatement of 2015 bad debt expense (net income tax credit)
Adjusted retained earnings, January 1, 2016	$
Add: Net income
	$
Less: Cash dividends
Retained earnings, December 31, 2016	$