The following pretax amounts were obtained from the for 1997. Debit Credit Retained Earnings (1/1/97) 847,000 Sales Revenues 1,385,000 Rent Revenue 360,000 Cost of Goods Sold 475,000 Administrative Expenses 100,000 Depreciation Expense 250,000 Selling Expenses 189,000 Extraordinary Loss 202,000 Loss on Sale of Fixed Assets 105,000 Dividends Declared 460,000 financial records of Watson Company The company’s tax rate is 35 percent. Chapter 13 The Complete Income Statement 673 REQUIRED:

a. Prepare an income statement for the year ended December 31, 1997, using the multistep format.

b. Prepare a statement of retained earnings for the year ended December 31, 1997.

c. What is the income tax effect associated with each item that is reported net of tax? Assuming that no taxes were owed at the beginning of 1997 and no tax payments were made during 1997, what is the total income tax liability at the end of 1997?