Question
Diversified Ltd. (DI) is a public company that started operations in 20X4. It opened a number of locations across Canada. In fiscal 20X4, the company
Diversified Ltd. (DI) is a public company that started operations in 20X4. It opened a number of locations across Canada. In fiscal 20X4, the company had earnings before tax of $290,000. The tax rate for 20X4 was 30%. DI has a 31 December year-end. The following occurred during 20X4.
a. DI purchased assets with an original cost of $780,000. The total depreciation for 20X4 was $52,000. For tax purposes, DI had $15,600 CCA deducted.
b. For sales during 20X4, DI recognized warranty expenses of $44,000. Actual warranty work completed during 20X4 was $30,000.
c. DI capitalized development costs of $200,000 for new product innovations. Amortization of this asset has not occurred yet, since the development work will continue in 20X5. These costs are deductible for tax purposes in the year.
d. DI contributed $5,000 to a local political campaign and expensed these costs during the year.
e. DI recognized revenues of $500,000 in 20X4. Only $440,000 of these revenues were collected and taxed during the year. The remainder will not be taxed until they are due and collected next year.
Required:
- Provide the journal entry to record income tax expense during 20X4. Show all supporting calculations.
- Identify the amount of income tax expense that is current and the amount that is deferred.
- Identify the relevant amounts that will be shown on the December 31 year-end statement of financial position with respect to income tax.
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