Reference no: EM132838747

Faulkner Corporation' accounting income for 2020, the first year of Faulkner's operations, was $250,000. Also available is the following information:

1. Faulkner provides consulting services on credit and offers a credit term of net 60 (payments are due 60 days after the invoice date). At the end of 2020, accounts receivable balance was $75,000. Service revenue is recognized when the services are provided. Service revenue is taxable when payments from customers are received.

2. Included in the accounting income above was $10,000 dividends income. Dividends from taxpaying Canadian companies are tax exempt for Faulkner.

3. Warranty liability at the end of 2020 was $30,000. The related warranty service expected to be required was $20,000 in 2021 was $10,000 in 2022. Warranty expense is recognized for accounting purposes when the sales are made, but for tax purpose when the work is done and payments is made.

4. The enacted tax rate is 30% for 2020 and 2021 and 20% for 2022 and thereafter.

Instructions

Problem a) Determine Faulkner's taxable income and income tax payable for 2020.

Problem b) Prepare schedule (similar to those on Slide 30 in 3352-ppt18 Chapter 18) to show of all the taxable/deductible temporary (timing) differences, the deferred tax assets and liability, and the net deferred tax asset or liability at the end of 2020.

Problem c) Calculate the net deferred tax expense or benefit for 2020.

Problem d) Prepare the adjusting journal entries to record income tax expense, deferred taxes, and income tax payable for 2020.

Problem e) Prepare the income tax section of the comparative income statements of 2020.