Reference no: EM132807816
For the year ended December 31, 2020, Flint Ltd. reported income before income taxes of $94,000. In 2020, Flint Ltd. paid $48,000 for rent; of this amount, $16,000 was expensed in 2020. The remaining $32,000 was treated as a prepaid expense for accounting purposes and would be expensed equally over the 2021-2022 period. The full $48,000 was deductible for tax purposes in 2020.
- The company paid $66,000 in 2020 for membership in a local golf club (which was not deductible for tax purposes).
- In 2020 Flint Ltd. began offering a 1-year warranty on all merchandise sold. Warranty expenses for 2020 were $46,000, of which $31,000 was actual repairs for 2020 and the remaining $15,000 was estimated repairs to be completed in 2021.
- Meal and entertainment expenses totalled $16,000 in 2020, only half of which were deductible for income tax purposes.
- Depreciation expense for 2020 was $220,000. Capital Cost Allowance (CCA) claimed for the year was $245,000.
- Flint was subject to a 20% income tax rate for 2020. Flint follows IFRS. At January 1, 2020, Flint Ltd. had no balances in deferred tax accounts.
Problem a. Calculate taxable income and taxes payable for 2020.
Problem b. Prepare the journal entries to record 2020 income taxes (current and deferred).
Problem c. Prepare the bottom part of Flint's income statement beginning with the line "Income before income tax".
Problem d. Calculate the effective tax rate and reconcile this with the statutory rate.
Problem e. Indicate how deferred taxes would be presented on the December 31, 2020 SFP.
Problem f. If the tax rate was changed on January 25 2021 to 25%, what adjustments, if any, would be necessary to the deferred tax account(s)?
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