(Future income taxes, LO 7) Noggle Inc. (Noggle) processes fresh apples that it purchases from local farmers into apple juice and applesauce. All of Noggle’s processing equipment was purchased in 2003 for $1,000,000. For accounting purposes, Noggle is amortizing the equipment on a straight-line basis over 10 years. For tax purposes, the asset is in a CCA class that allows Noggle to deduct 30% of the capital cost of the asset on a declining-balance basis. Because of the half-year rule Noggle can deduct only one-half of the allowable amount (15%) of the cost. Noggle has an income tax rate of 20% and its income before amortization and taxes is $350,000 in each year from 2003 through 2005. Noggle has no temporary differences between tax and financial reporting, except for the difference between amortization and CCA on the processing equipment, and there are no permanent differences.

Required:

a. Calculate Noggle’s taxable income in 2003 through 2005.

b. Calculate the amount of income tax that Noggle must pay in 2003 through 2005.

c. Calculate the accounting and tax bases of the processing equipment in 2003 through 2005.

d. Calculate the future tax asset or liability that would be reported on Noggle’s balance sheet at the end of 2003 through 2005.

e. Prepare the journal entry that Noggle would make each year to record its income tax expense in 2003 through 2005.

f. Calculate Noggle’s net income in 2003 through 2005.
g. What would Noggle’s net income be in 2003 through 2005 if it used the taxes payable method?
h. As a banker, which measure of net income is more useful to you? Explain.