P5-4 Income Statement, Lower Portion Cunningham Company reports a retained earnings balance of $365,200 at the beginning of 2007. For the year ended December 31, 2007, the company reports pretax income from continuing operations of $150,500. The following information is also available pertaining to    2007:

1.      The company declared and paid a $0.72 cash dividend per share on the 30,000 shares of common stock that were out- standing the entire year.

2.      The company found and corrected a pretax $48,000 understatement of 2006 depreciation expense because of a mathe- matical error.

3.      The company incurred a pretax $21,000 loss as a result of an earthquake, which is unusual and infrequent for the area.

4.      The company sold Division P (a component of the company) in May. From January through May, Division P had incurred a pretax loss from operations of $33,000. A pretax gain of $15,000 was recognized on the sale of Division P.

5.      Because of additional information, the company determined that the estimated useful life of certain depreciable assets had decreased. As a result, the current depreciation expense included in the 2007 pretax income from continuing opera- tions is $7,000 higher than it would have been had the original estimated useful life been used in the calculations.

Required

Assuming that all the “pretax” items are subject to a 30% income tax rate:

1.      Complete the lower portion of Cunningham Company’s 2007 income statement beginning with “Pretax Income from Continuing Operations.” Include any related note to the financial statements.

2.      Prepare an accompanying retained earnings statement.