Reference no: EM132595779

ABC Company began operations 1 January 2019. By the end of 2019 the company had a $58 500 balance in the Deferred Tax Liability account that pertains to property plant and equipment (PPE), which was acquire 1 July 2019 at a cost of $900 000. The PPE is being depreciated on a straight line basis over six years for financial reporting purposes, and is Class 8 (20% asset) for tax purposes. The Company follows IFRS rules. 2020 income before taxes was $60 000.

The following items caused the only differences between accounting income before income taxes and taxable income in 2020.

1. In 2020 the company paid $56 250 for rent. Only $18 750 was expenses in 2020; the remaining $37 500 will be expensed equally over the 2021 and 2022 accounting periods. The full $56 250 was deducted for tax purposes in 2020.

2. The company pays $9 000 for a membership in a local golf club membership used by the president.

3. The company offers a 1-year warranty on all merchandise sold. Warranty expenses for 2020 were $ 9 000. Cash payments for warranty repairs in 2020 were $4 500.

4. Meals and entertainment expenses are only 50% tax deductible; the accounting expense for meals and entertainment was $12 000 in 2020.

5. The maximum allowable CCA was taken in 2020. There were no asset disposals in 2020. Assume the PPE is considered 'eligible equipment' for the purposes of the Accelerated Investment Incentive (instead of using the half-year rule, a company is allowed a first year deduction using 1.5 times the standard CCA rate).

6. Income tax rates have not changed for the entire period under review.

Instructions:

Question a) Calculate the balance in the Deferred Tax Asset or the Deferred Tax Liability account at 31 December 2020.

Question b) Calculate income taxes payable at 31 December 2020.

Question c) Prepare the journal entries to record income taxes for 2020. You do not need to write 'explanatory notes' with your entries.

Question d) Prepare the income tax expense section of the income statement for 2020 beginning with the line " Income Before Income Tax."

Question e) Indicate how deferred taxes should be presented on the 31 December 2020 SFP.