Question # 2

For the year ended December 31, 2020, Kingbird Ltd. reported income before income taxes of $198,500. Prior to 2020 taxable income and accounting income was the same each year.

In 2020, Kingbird Ltd. paid $129,600 for advertising; of this amount, $43,200 was expensed in 2020. The remaining $86,400 was treated as a prepaid expense for accounting purposes and would be expensed equally over the 2021-2022 period. The full $129,600 was deductible for tax purposes in 2020.

The company paid $31,100 in 2020 for membership in a local golf club (which was not deductible for tax purposes).

In 2020 Kingbird Ltd. began offering a 1-year warranty on all merchandise sold. Warranty expenses for 2020 were $25,900, of which $20,200 was actual repairs for 2020 and the remaining $5,700 was estimated repairs to be completed in 2021.

Meal and entertainment expenses totalled $41,200 in 2020, only half of which were deductible for income tax purposes.

Depreciation expense for 2020 was $104,900. Capital Cost Allowance (CCA) claimed for the year was $134,200. Depreciation and CCA relate to an asset that was purchased on January 1, 2020 for $524,500.

Kingbird was subject to a 25% income tax rate for 2020. Kingbird follows IFRS.

Instructions:

a. Calculate taxable income and taxes payable for 2020. (3 Marks)

b. Prepare the journal entries to record 2020 income taxes (current and deferred). (4 Marks)