Reference no: EM133163759
Question - Tranquility Properties has determined that its 2022 accounting income is $1,780,000. Tranquility had acquired equipment in the prior year at a cost of $840,000. The equipment is being depreciated over 8 years for financial reporting purposes, has a residual value of $40,000 and is a Class 8 - 20% for tax purposes with half in the year of acquisition. Depreciation was $100,000 in the prior year - 2021. Tranquility had a deferred tax asset on its statement of financial position in the amount of $4,000 resulting from differences in depreciation and CCA on equipment. The tax rate is 25% for all years. Tranquility follows IFRS.
During 2022, the following items caused taxable income to be different than accounting income:
For tax purposes, CCA was $151,200 in 2022. The year-end book value is $640,000 and the tax value is $604,800.
In 2022 Tranquility Inc. paid $60,000 rent in advance for 2023 ($30,000) and 2022 ($30,000). The Canada Revenue Agency (CRA) allows the deduction of actual rent payments when they are paid. By December 31, 2022, Tranquility had a balance of $30,000 in Prepaid Rent.
In 2022, dividends of $30,000 were received from a taxable Canadian corporation and included in accounting income. These dividends are not taxable.
In 2022, a golf club membership of $6,500 was an expense in arriving at accounting income. This is not an allowable deduction for tax purposes.
In 2022, Tranquility Inc. offered a warranty on goods sold. Warranty expenses for 2022 were $32,600 and warranty cash payments in 2022 were $10,600. The balance of the warranty liability on the statement of financial position is $22,000. The Canada Revenue Agency (CRA) allows the deduction of actual warranty costs when they are paid.
Required -
(a) Calculate taxable income for 2022.
(b) Calculate current income taxes payable for 2022.
(c) Calculate the balance of any deferred income taxes asset and deferred income tax liability at December 31, 2022. For each item identify any balances as either a deferred tax asset or a deferred tax liability.
(d) Prepare the journal entry(s) to record current income taxes for 2022 and record an entry for of the deferred tax determined in part c.