(Appendix 8A): Deferred (Future) Income Tax: Temporary Differences

The average income tax rate used for 2017 and 2018 is \(40 \%\) and for the foreseeable future. Temporary differences of \(\$ 50,000\) and \(\$ 25,000\) were noted for 2017 and 2018 , respectively. Permanent differences of \(\$ 10,000\) and \(\$ 5,000\) were noted for 2017 and 2018, respectively. Assume that the permanent differences are deductible for tax purposes from pretax accounting income.
\section*{Required:}
For 2017 and 2018, calculate

(a) the income taxes payable to Canada Revenue Agency and

(b) the deferred income tax. Is the deferred income tax a liability or an asset? Explain. Note: temporary differences are not deductible for tax purposes in the current year.

Exercise

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Pretax accounting income 2018 2017 $350,000 $250,000