SET YOUR FINANCIAL CALCULATORS TO ZERO DECIMAL PLACES

ALL YOUR ANSWERS MUST BE ROUNDED TO THE NEAREST $1

Question 1

Grace Corporation's pretax financial income is $600,000 and taxable income is $550,000 for year 2020.

Its beginning deferred tax liability account has a balance of $75,000. Its cumulative temporary

differences for year-end 2020 is equal to $300,000 and will reverse and result in taxable amounts as follows:

Year Taxable Amount

2021 $100,000

2022 $ 75,000

2023 $125,000

The tax rate is 30% for all years.

Required:

Calculate the taxes payable for the year 2020

Calculate the deferred tax liability for the year 2020

Calculate the total tax expense for 2020

Prepare the journal entry to record the tax expense for 2020

Prepare the income statement presentation of the tax amounts

(i) The taxes payable for year 2X20 are calculated as follows:

Pretax financial income for 2X20	=
Temporary difference at end of 2X20	=
Taxable income for 2X20	=
Tax rate	=
Taxes payable for 2X20	=

(ii) The deferred tax liability is calculated as follows:

	2021	2022	2023	Total
Deferred tax liability	=	=	=	=

(iii) Total tax expense for year 2020 is as follows:

Current tax expense for 2020	=
Deferred tax expense for 2020	=
Total tax expense for 2020	=

(iv) The journal entry to record tax expense is:

AnswerDeferred Tax AssetIncome Tax PayableIncome Tax Expense		=
	AnswerIncome Tax PayableIncome Tax ExpenseDeferred Tax Asset		=
	Deferred Tax Liability		=

(v) Income Statement Presentation

Profit before tax		=
Income Taxes:
Current expense	=
Deferred expense	=	=
Net Profit for the year		=