Harrow Corp., a private company that uses ASPE, purchased equipment for $180,000 on January 2, 2020, its first day of operations.

For book purposes, the equipment will be depreciated straight-line over three years with no residual value. For tax purposes, the equipment has a CCA rate of 40% and is eligible for the Accelerated Investment Incentive. The Accelerated Investment Incentive permits deduction of 1.5 times the full CCA rate (i.e. no half-year rule needs to be applied) in 2020. In 2021, CCA at 40% is take and in 2022 all remaining costs will be deducted when the asset is disposed of at the end of the year.

Pre-tax accounting incomes and taxable incomes are as follows:

2020 2021 2022

Pre-tax accounting income$124000$140000$150000

Taxable income 76000171200166800

The difference between pre-tax accounting income and taxable income in the years is due solely to the use of CCA for tax purposes. There are no permanent timing differences in any of the years.

Harrow Corp. has not adopted the taxes payable option for accounting for its income taxes.

Instructions

a.Prepare all adjusting journal entries required to record income taxes for 2020, 2021 and 2022. The enacted income tax rate for 2020 is 30% but on June 30, 2021, Parliament raises the income tax rate to 35%, retroactive to the beginning of 2021.

b. Calculate Harrow's future tax balance at December 31 2020, 2021 & 2022 and indicate where it would be shown in Harrow's financial statements for each of those years.

c. If Harrow were a public company, would the classification of the future tax balances be determined the same way as under ASPE. If not, how would it differ?Would any other changes be required to your answers to required "a" and "b" it Harrow were a public company?