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Construct the journal entries to record income taxes

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Reference no: EM132626794

Big Ink is a chain of tattoo parlors that follows IFRS. The following data is for 2020:

  • Golf club dues were $30,000.
  • Automated tattoo machinery was acquired on January 1, 2019, for $200,000. Straight-line depreciation is over a 10-year life with a $20,000 residual value. For taxes, the 30% rate class is used, and Big Ink applied the CRA half year rule in 2019.
  • On December 31, 2020, Big Ink accrued a provision for legal expense of $40,000. The estimated legal liability of $40,000 relates to four pending lawsuits. In addition to the $40,000, legal costs paid out in cash during 2020 were $60,000. These related to lawsuits started and settled during 2020. Big Ink believes that the new automated equipment will reduce the number of lawsuits.
  • Pretax accounting income for 2020 is $880,000. The income tax rate is 25%.

Instructions

Question 1: Do a schedule (starting with pretax accounting income) to calculate taxable income. On your schedule, indicate a subtotal for accounting income after permanent differences.

Question 2: Prepare the journal entries to record income taxes for 2020.

Reference no: EM132626794

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