A16-8 Tax Calculations:

Penguin Corp. reported accounting earnings before taxes as follows: 20X6, $675,000; 20X7, $57,000. Taxable income for each year would have been the same as pre-tax accounting income except for the tax effects, arising for the first time in 20X6, of $7,200 in rent revenue, representing $1,200 per month rent revenue collected in advance on 1 October 20X6, for the six months ending 31 March 20X7. Rent revenue is taxable in the year collected. The tax rate for 20X6 and 20X7 is 25%, and the year-end for both accounting and tax purposes is 31 December. The rent revenue collected in advance is the only difference between accounting earnings and taxable income, and it is not repeated in October 20X7.

Required:

Is this a temporary difference? Why, or why not?

What is the accounting carrying value for the unearned rent at the end of 20X6? The tax basis? Explain.

Calculate taxable income and income tax payable, and prepare journal entries for each year-end.

Prepare a partial statement of profit and loss for each year, starting with pre-tax accounting earnings.

What amount of deferred income tax would be reported on the 20X6 and 20X7 statements of financial position?