Exercise 18-14

Pina Colada Corporation purchased equipment very late in 2020. Based on generous capital cost allowance rates provided in the Income Tax Act, Pina Colada Corporation claimed CCA on its 2020 tax return but did not record any depreciation because the equipment was being tested. This temporary difference will reverse and cause taxable amounts of $32,300 in 2021, $32,100 in 2022, and $41,500 in 2023. Pina Coladas accounting income for 2020 is $227,800 and $195,800 in each of 2021 and 2022, and the tax rate is 30%. There are no deferred tax accounts at the beginning of 2020. Pina Colada Corporation was informed on December 31, 2021 that the enacted rate for 2022 and subsequent years is 25%.

Calculate the deferred tax balances at December 31, 2021 and 2022.

2021 2022

Deferred tax

$

$

SHOW LIST OF ACCOUNTS

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

Calculate taxable income and income tax payable for 2021 and 2022.

2021 2022

Taxable income $

$

Income taxes payable $

$

SHOW LIST OF ACCOUNTS

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

Prepare the journal entries to record income taxes for 2021 and 2022. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

2021

(To record current tax expense)

(To record deferred tax benefit)

2022

(To record current tax expense)

(To record deferred tax benefit)

SHOW LIST OF ACCOUNTS

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

Prepare the income tax expense section of the income statement for 2021, beginning with the line Income before income tax.

Pina Colada Corporation

(Partial) Income Statement

$

$

$

SHOW LIST OF ACCOUNTS

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

Prepare the income tax expense section of the income statement for 2022, beginning with the line Income before income tax.

Pina Colada Corporation

(Partial) Income Statement

$

$

$