Reference no: EM132607960
Skylark Company started operations in January 1, 2019. By the end of 2019, the company had $58,500 balance in the Deferred Tax Liability account that pertains to property plant and equipment (PPE), which was acquired 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 the tax purposes. the company follows IFRS rules. In 2020, the income before tax was $60,000.
The following items caused the only difference 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 purpose in 2020.
2. The company pays $9000 for the membership in a local golf club membership used by the president.
3. The company offers a 1-year warranty on all merchandises sold. Warranty expense 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 expenses 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 PPE is considered eligible equipment for the purpose of the Accelerated Investment Incentive (instead of half year rule, a company is allowed first year deduction using 1.5 times as 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. Show the journal entries to record income taxes for 2020. Not need to write explanatory notes with your entries.
Question d. Show income tax expense section of the income statement for the 2020 beginning with the line :Income Before Income Tax".
Question e. Indicate how deferred tax should be presented on the 31, December 2020 SFP.
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