You have been asked to account for income taxes for Pace Design.

At December 31, 2018, the net book value of capital assets was $555,000 and the undepreciated capital cost was $340,000. In addition, there was a $388,000 accounts receivable on the company's balance sheet. This receivable had been set up in 2018 upon the recognition of revenue. The revenue will not be taxable until the receivable is collected. Pace Design has always been a profitable company and has had accounting and taxable income in each of the last three years. Taxable income totalled $70,000 over the last three years, including 2018. The tax rate has been stable at 50%.

In 2019, Pace Design recorded its first-ever accounting loss, reporting a loss of $481,000. This included revenue on the collection of a life insurance policy on the company president, who died in a mountain climbing accident during the year. The $202,000 revenue is not taxable now or in any future period. Depreciation expense was $44,000. No capital allowance was claimed. No portion of the 2018 account receivable was collected. The tax rate, enacted in 2019, was 45%. Pace Design management felt that they were assured of realizing the tax loss carry forward in future years.

In 2020, Pace Design returned to financial health and reported accounting income of $269,000. Non-deductible advertising expenses were $27,000. Depreciation was $57,000, and capital allowance was $72,000. Of the receivable recorded in 2018, $125,000 was collected. The tax rate, enacted in 2020, was 55%.

Required

a) Calculate taxable income and taxes payable for 2019 and 2020. Taxes payable for 2020 should be calculated before the application of any available loss carry forward. 

b) Complete the following calculations of the loss carry back, refund receivable and the loss carry forward at the end of 2019.

c) Complete the following calculations of changes/adjustments to deferred to be journalized under the deferred tax method include amounts related to any loss carry forward.

d) Prepare the December 31 journal entries to record income taxes for 2019 and 2020. Use the Income tax expense account for all income statement adjustments to both current and deferred taxes. Enter an appropriate description when entering the transactions in the journal.