Comprehensive
Response to the following problem:
Colt Company reports pretax financial "income" of $143,000 in 2010. In addition to pretax income from continuing operations (of which revenues are $295,000), the following items are included in this pretax "income":
Extraordinary gain $30,000
Loss from disposal of Division B (10,000)
Income from operations of discontinued Division B 16,000
Prior period adjustment (8,000)
The taxable income of the company totals $123,000 in 2010. The difference between the pretax financial income and the taxable income is due to the excess of tax depreciation over financial depreciation on assets used in continuing operations.
At the beginning of 2010, the company had a retained earnings balance of $310,000 and a deferred tax liability of $8,100. During 2010, the company declared and paid dividends of $48,000. It is subject to tax rates of 15% on the first $50,000 of income and 30% on income in excess of $50,000. Based on proper interperiod tax allocation procedures, the company has determined that its 2010 ending deferred tax liability is $14,100.
Required
1. Prepare a schedule for the Colt Company to allocate the total 2010 income tax expense to the various components of pretax income.
2. Prepare the income tax journal entry of the Colt Company at the end of 2010.
3. Prepare Colt Company's 2010 income statement.
4. Prepare Colt Company's 2010 statement of retained earnings.
5. Show the related income tax disclosures on the Colt Company's December 31, 2010 balance sheet