Rougemont Inc. (Rougemont) is a small print and photocopy shop that began operations in 2014. Rougemont purchased equipment for \($100,000\) to begin operations. For accounting purposes, Rougemont is depreciating the equipment on a straight-line basis over eight years, with no residual value. For tax purposes, the asset is in a CCA class that allows Rougemont to deduct 20 percent of the capital cost of the asset on a declining-balance basis. Because of the half-year rule, Rougemont can deduct only one-half of the allowable amount (10 percent) of the cost in 2014. Rougemont has an income tax rate of 16 percent and its income before depreciation and taxes is \($140,000\) in each year from 2014 through 2016. Rougemont has no temporary differences between tax and financial reporting except for the difference between depreciation and CCA on the equipment, and there are no permanent differences.

Required:

a. Calculate Rougemont’s taxable income in 2014 through 2016.

b. Calculate the amount of income tax that Rougemont must pay in 2014 through 2016.

c. Calculate the accounting and tax bases of the equipment in 2014 through 2016.

d. Calculate the future tax asset or liability that would be reported on Rougemont’s balance sheet at the end of 2014 through 2016.

e. Prepare the journal entry that Rougemont would make each year to record its income tax expense in 2014 through 2016.

f. Calculate Rougemont’s net income in 2014 through 2016.
g. What would Rougemont’s net income be in 2014 through 2016 if it used the taxes payable method?
h. As a banker, which measure of net income is more useful to you? Explain.
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