Reference no: EM133093150
Question - Part A - The following information applies to Lambda Corporation, which reports under IFRS.
1. Prior to 2019, taxable income and accounting income were identical.
2. Accounting income was $210,000 in 2019 and $230,000 in 2020.
3. Rent of $90,000 were collected in advance and taxable in 2019 but were not earned and included in accounting income until 2020.
4. Expenses on the 2020 income statement included political contributions of $30,000, which were not deductible for income tax purposes. (No contributions made in 2019).
5. Expenses on the 2019 income statement included $52,000 of estimated warranty costs, which were not deductible for income tax purposes until 2020.
Required -
1. Compute the taxable income and income tax payable in 2019 and 2020. Assume an average tax rate of 40% for all years. Show all supporting calculations.
2. Prepare the journal entries to record income tax expense, deferred taxes and income tax payable in 2019 and 2020 for Lambda.
Part B - In 2020, its first year of operations, Rho Inc., a Canadian public company, reported a $ 500,000 loss for tax purposes. At the end of 2020, because it is a new company, Rho's management thought that it was probable that the loss carryforward would not be realized in the near future and no journal entry was made to recognize the loss carryforward. However, in 2021, Rho reported $ 300,000 taxable income. The tax rate is 25% and is likely to remain at this rate for the foreseeable future. By the end of 2021, management feels it is now probable that there will be future taxable incomes against which the 2020 loss could be applied.
Required - Prepare the entries (if any) in 2021 to record current and deferred taxes and to recognize the loss carryforward.
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