Question 5 Income Tax Deferral, expense and payable In October 2020, Ashley Corporation purchased specialized manufacturing equipment.
Question:
Question 5 Income Tax Deferral, expense and payable
In October 2020, Ashley Corporation purchased specialized manufacturing equipment.
In 2020, on Ashley Corporations tax return they did claim CCA, but did not claim depreciation due to the fact the equipment was still being installed.
This temporary difference will reverse and cause taxable amounts of $25,000 in 2021, $30,000 in 2022, and $40,000 in 2023.
Ashley's accounting income for 2020 is $180,000 and the tax rate is 30% for all years. There are no deferred tax accounts at the beginning of 2020.
Required:
a. (5 marks) Calculate the deferred tax balance on December 31, 2020.
b. (10 marks) Calculate taxable income and income tax payable for 2020.
c. (5 marks) Prepare the journal entries to record income taxes for 2020.