Recording the intraperiod income tax allocation

Question

Intraperiod Tax Allocation

Solve the following problem:

The Wright Company reports the following information for the year ended December 31, 2010:

Pretax income from continuing operations                                   $160,000^a

Pretax gain from sale of investment (extraordinary item)               30,000

Pretax income from operations of discontinued Division M             27,000

Pretax loss on disposal of Division M                                          (45,000)                               

Pretax correction of error in understating depreciation in 2009       (8,000)

Retained earnings, January 1, 2010                                             410,000

Cash dividends during 2010                                                        48,000

Total income tax                                                                       41,000^b

a. Of this amount, revenues are $400,000 and expenses are $240,000.

b. Of this amount $7,500 relates to the extraordinary item; $6,750 relates to the pretax income from the operations of discontinued Division M; the pretax loss on the disposal of Division M resulted in an income tax savings of $11,250; and the pretax correction of the depreciation error resulted in an income tax savings of $2,000.

Required

1. Prepare the year-end journal entry necessary to record the 2010 intraperiod income tax allocation in regard to the preceding information.

2. Prepare Wright's 2010 income statement and statement of retained earnings.