Problem 1 A company's net income before taxes for the year 20x5 is $1,455,000. The following amounts were included in arriving at this amount: Meals and entertainment expense of $40,000 and club dues of $25,000 Dividends from taxable Canadian corporations of $18,000 Pension expense (total service and interest) of $294.000 Warranty expense of $38,000 Provision expense of $500,000 (the company is being sued and is expecting to pay out $500,000 in 20x7). There were three temporary differences at the beginning of the year. Opening net book value of $3,378,000 vs. undepreciated capital cost of $3,500,000 On the warranty liability of $23,000 On the pension asset of $22,000 The tax rate used to calculate the opening DIT account was 34%. The following additional information is available for the year 20x5: Additions to the buildings and equipment amounted to $300,000 One asset was disposed of for $50,000. The original cost of the asset was $60,000 The asset had a net book value of $40,000 on the date of disposal. Depreciation expense and capital cost allowance for 20x5 were $160,000 and $400,000, respectively. Pension contributions paid to the pension plan trustee amounted to $200,000. Warranty costs incurred totaled $18,700 for the year. The company entered into a finance lease for the acquisition of equipment on Jan. 2, 20x5. The fair value of the equipment was $130,000, with an unguaranteed residual value of $10,000 at the end of the 6-year lease term and a residual value of $4,000 at the end of the 8-year useful life. The interest rate implicit in the lease is 6%. The company properly accounted for this lease as a ROU Asset. The tax rate for the year 20x5 is 34%. At the end of 20x5, the federal goverment enacted the 20x6 tax rate at 32% 2 Required Prepare the journal entries to record the current portion of income tax expense and the deferred portion of income tax expense for the year 20x5. Problem 1 A company's net income before taxes for the year 20x5 is $1,455,000. The following amounts were included in arriving at this amount: Meals and entertainment expense of $40,000 and club dues of $25,000 Dividends from taxable Canadian corporations of $18,000 Pension expense (total service and interest) of $294.000 Warranty expense of $38,000 Provision expense of $500,000 (the company is being sued and is expecting to pay out $500,000 in 20x7). There were three temporary differences at the beginning of the year. Opening net book value of $3,378,000 vs. undepreciated capital cost of $3,500,000 On the warranty liability of $23,000 On the pension asset of $22,000 The tax rate used to calculate the opening DIT account was 34%. The following additional information is available for the year 20x5: Additions to the buildings and equipment amounted to $300,000 One asset was disposed of for $50,000. The original cost of the asset was $60,000 The asset had a net book value of $40,000 on the date of disposal. Depreciation expense and capital cost allowance for 20x5 were $160,000 and $400,000, respectively. Pension contributions paid to the pension plan trustee amounted to $200,000. Warranty costs incurred totaled $18,700 for the year. The company entered into a finance lease for the acquisition of equipment on Jan. 2, 20x5. The fair value of the equipment was $130,000, with an unguaranteed residual value of $10,000 at the end of the 6-year lease term and a residual value of $4,000 at the end of the 8-year useful life. The interest rate implicit in the lease is 6%. The company properly accounted for this lease as a ROU Asset. The tax rate for the year 20x5 is 34%. At the end of 20x5, the federal goverment enacted the 20x6 tax rate at 32% 2 Required Prepare the journal entries to record the current portion of income tax expense and the deferred portion of income tax expense for the year 20x5