Other Information:

1. A tax deduction for bad debts is allowed when bad debts are written off. Bad debts written off were $242,000, $227,500 and $250,000 at 30 June 2018, 30 June 2019 and 30 June 2020 respectively.

2. Cash paid for prepaid expenses in each year was allowed as a tax deduction.

3. Plant and equipment was purchased on 1 July 2017 for $5,400,000. This asset was depreciated straight-line over 8 years for accounting purposes and 6 years for tax purposes. The tax base of plant and equipment was $4,500,000, $3,600,000, and $2,700,000 at 30 June 2018, 30 June 2019 and 30 June 2020 respectively.

4. Warranty claims are allowed as a deduction for tax purposes when cash is paid to meet warranty claims. The warranty claims paid were $470,000 and $540,000 during the periods ended 30 June 2019 and 30 June 2020 respectively.

5. The company income tax rate over the relevant period was 30%.

REQUIRED: Prepare journal entries to record current tax expense and deferred tax expense for the year ended 30 June 2020. Journal entries must comply with AASB 112 Income Taxes. Show all necessary working, explanations and assumptions to support your answer.

QUESTION THREE (18 marks or 9% out of 25%) Stowe Ltd is a reporting entity and complies with AASB 112 'Income Taxes'. Stowe maintains separate accounts for any deferred tax assets or deferred tax liabilities (.e. does not offset deferred tax assets and deferred tax liabilities). Stowe's accounting records disclosed the following: Income Statement Information: 30/6/20 $2,775,000 30/6/19 $1,200,000 $120,000 Year ended Accounting Profit before income tax Revenue/expenses included in profit/(loss) before tax: Legal fees (not deductible for income tax purposes) Exempt income Prepaid expenses Depreciation expense on plant & equipment Bad & doubtful debts expense Warranty expense 0 $340,000 465,000 675,000 60.000 285,000 650,000 675,000 220,000 700,000 CF Extracts from Stowe's balance sheets as at 30 June 2020, June 2019 and 30 June 2018: Extract from Balance Sheet 30 June 30/6/20 30/6/19 30/6/18 Accounts receivable $600,000 $750,000 950,000 Less Allowance for bad debts (52.500) 182,500) 190,000) 547,500 667,500 860,000 Prepaid expenses 615,000 510,000 780,000 Plant & Equipment (net) 3,375,000 4,050,000 4,725,000 Provision for warranty 375,000 630,000 400,000