Use the information for Sorpon Corporation in E18-12. Assume that the company reports accounting income of $180,000 in each of 2018 and 2019, and that there are no reversing differences other than the one identified in E18-12.
In addition, assume now that Sorpon Corporation was informed on December 31, 2018 that the enacted rate for 2019 and subsequent years is 25%.
In E18-12
Sorpon Corporation purchased equipment very late in 2017. Based on generous capital cost allowance rates provided in the Income Tax Act, Sorpon Corporation claimed CCA on its 2017 tax return but did not record any depreciation because the equipment had not yet been put into use. This temporary difference will reverse and cause taxable amounts of $25,000 in 2018, $30,000 in 2019, and $40,000 in 2020. Sorpon's accounting income for 2017 is $200,000 and the tax rate is 30% for all years. There are no deferred tax accounts at the beginning of 2017.
Instructions
(a) Calculate the deferred tax balances at December 31, 2018 and 2019.
(b) Calculate taxable income and income tax payable for 2018 and 2019.
(c) Prepare the journal entries to record income taxes for 2018 and 2019.
(d) Prepare the income tax expense section of the income statements for 2018 and 2019, beginning with the line "Income before income tax."