Use the information for Sorpon Corporation in E18-6, and assume that the company reports accounting income of $180,000 in each of 2012 and 2013, and no reversing differences other than the one identified in E18-6. In addition, assume now that Sorpon Corporation was informed on December 31, 2012, that the enacted rate for 2013 and subsequent years is 35%.
In BE Sorpon Corporation purchased equipment very late in 2011. Based on generous capital cost allowance rates provided in the Income Tax Act, Sorpon Corporation claimed CCA on its 2011 tax return but did not record any depreciation as the equipment had not yet been put into use. This temporary difference will reverse and cause taxable amounts of $25,000 in 2012, $30,000 in 2013, and $40,000 in 2014. Sorpon's accounting income for 2011 is $200,000 and the tax rate is 40% for all years. There are no future tax accounts at the beginning of 2011.
Instructions
(a) Calculate the future income tax balances at December 31, 2012 and 2013.
(b) Calculate taxable income and income taxes payable for 2012 and 2013.
(c) Prepare the journal entries to record income taxes for 2012 and 2013.
(d) Prepare the income tax expense section of the income statements for 2012 and 2013, beginning with the line “Income before income taxes.”