Problem 1: At year end December 31, Yukon Transportation has an accounting income of $400,000. The following are permanent differences, note the amount that should be added or subtracted and give the adjusted accounting income there were no temporary differences. Adjustment needed to Accounting Income Permanent Difference Accounting Amount (amount added or subtracted) Dividends received from Canadian Corp. $ 97,000 Fee to Join Whitehorse Golf Club for Salesperson $ 10,000 Life insurance premiums on key employees $ 1,000 Capital gains $ 20,000 Meal and entertainment costs $ 2,500 Adjusted Accounting Income If their tax rate was 28% and they had made no provision for tax, or paid any installments, prepare the journal entry for their year end adjustment for tax. Journal Entries Date Account/Explanation Debit Credit Problem 2: First some Review: Accounting Income - Permanent Differences = Adjusted Taxable Income that will be subject to Tax at some point (this is the Total Tax Expense) O AI-PD=ATI O ATI X TR = TE Adjusted Taxable Income - Temporary Differences and/or + Temporary Differences = Current Taxable Income O ATI-TD+TD=CTI Current Taxable income times Tax Rate = Tax Payable o CTI 1 TR= TP Temporary differences that decrease current taxable income create deferred tax liabilities (that reverse over time to increase future taxable income) and are called Taxable Temporary Differences 0 TDD X TR=DTL Temporary differences that increase current taxable income create deferred tax assets (that reverse over time to decrease future taxable income) and are called Deductible Temporary Differences o DTD TR=DTA . . Taking note of the above and following the steps below, you will prepare journal entries to record tax expense, tax payable, deferred tax liability or deferred tax asset for 2015, 2016 and 2017 for Cussler Inc. Tax Rate is 25% in each year. There were no existing deferred tax Assets or liabilities. Step One: Calculate Adjusted Accounting Income Cussler has net income in 2015 of $120,000, in 2016 of $140,000 and in 2017 of $100,000 included in those numbers are permanent differences created by Club Memberships of $1,000; $2,000; $4,000 in each year + respectively. 2015 2016 2017 Net Income Permanent Differences Adjusted Accounting Income From this you can calculate the Total Tax Expense for each year 2015 2016 Tax Expense 2017 Step Two: Calculate Temporary Differences Depreciation Expense was $20,000 in each year; but CCA was $32,000; $14,000; $14,000. Warranty Expense was accrued at $5,000; $4,000; $3,000, but warranty costs actually paid was $2,000; $3,000 and $4,000. Determine the amount and type of the temporary difference and then whether it has created a Deferred Tax Liability or a Deferred Tax Asset