Sabby Corporation, incorporated in 2017 had the following data.

2017 Accounting income (loss) before tax: $ 290,000

Items included in arriving at income before tax: Dividends received from a Canadian corp.

2018 $320,000

75,000 300,000 60,000

350,000 70,000

2019 $(700,000)

65,000 300,000 20,000

250,000 20,000

(not taxable) Depreciation expense Warranty expense

Additional information: Capital cost allowance Warranty costs paid

50,000 300,000 50,000

400,000 30,000

The tax rates in effect are 32% in 2017, 30% in 2018 and 25% in 2019.

Instructions

a) Prepare a tax reconciliation for all years. Calculate taxable income and tax payable. (6 marks)

b) Prepare the income tax journal entries for 2017, 2018 and 2019. Assume that it is probable that any loss carryforwards will be recognized. (10 marks)