Question
During 2020, the following items caused taxable income to be different than accounting income: For tax purposes, CCA was $172,800 in 2020. The year-end book
During 2020, the following items caused taxable income to be different than accounting income:
- For tax purposes, CCA was $172,800 in 2020. The year-end book value is $720,000 and the tax value is $691,200.
- In 2020 Killim Inc. paid $72,000 rent in advance for 2020 ($36,000) and 2021 ($36,000). The Canada Revenue Agency (CRA) allows the deduction of actual rent payments when they are paid. By December 31, 2020, Killim had a balance of $36,000 in Prepaid Rent.
- In 2020, dividends of $24,000 were received from a taxable Canadian corporation and included in accounting income. These dividends are not taxable.
- In 2020, a golf club membership of $7,200 was an expense in arriving at accounting income. This is not an allowable deduction for tax purposes.
- In 2020, Killim Inc. offered a warranty on goods sold. Warranty expenses for 2020 were $26,400 and warranty cash payments in 2020 were $9,600. The balance of the warranty liability on the statement of financial position is $16,800. The Canada Revenue Agency (CRA) allows the deduction of actual warranty costs when they are paid.
Required:
( a ) Calculate taxable income for 2020.
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( b ) Calculate current income taxes payable for 2020.
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( c ) Calculate the balance of any deferred income taxes asset and deferred income tax liability at December 31, 2020. Do this for each item and identify any balances as either a deferred tax asset or a deferred tax liability.
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(d ) Prepare the journal entry(s) to record current income taxes for 2020 and record an entry for of the deferred tax determined in part c.
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During 2020, the following items caused taxable income to be different than accounting income:
- For tax purposes, CCA was $172,800 in 2020. The year-end book value is $720,000 and the tax value is $691,200.
- In 2020 Killim Inc. paid $72,000 rent in advance for 2020 ($36,000) and 2021 ($36,000). The Canada Revenue Agency (CRA) allows the deduction of actual rent payments when they are paid. By December 31, 2020, Killim had a balance of $36,000 in Prepaid Rent.
- In 2020, dividends of $24,000 were received from a taxable Canadian corporation and included in accounting income. These dividends are not taxable.
- In 2020, a golf club membership of $7,200 was an expense in arriving at accounting income. This is not an allowable deduction for tax purposes.
- In 2020, Killim Inc. offered a warranty on goods sold. Warranty expenses for 2020 were $26,400 and warranty cash payments in 2020 were $9,600. The balance of the warranty liability on the statement of financial position is $16,800. The Canada Revenue Agency (CRA) allows the deduction of actual warranty costs when they are paid.
Required:
( a ) Calculate taxable income for 2020.
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( b ) Calculate current income taxes payable for 2020.
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( c ) Calculate the balance of any deferred income taxes asset and deferred income tax liability at December 31, 2020. Do this for each item and identify any balances as either a deferred tax asset or a deferred tax liability.
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(d ) Prepare the journal entry(s) to record current income taxes for 2020 and record an entry for of the deferred tax determined in part c.
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