Carleton Corps net income before taxes for the year 20x5 is $3,250,000. The following amounts were included
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Question:
Carleton Corp’s net income before taxes for the year 20x5 is $3,250,000. The following amounts were included in arriving at this amount:
- Meals and entertainment expense of $60,000 and club dues of $40,000
- Dividends from taxable Canadian corporations of $85,000
- Pension expense (total service and interest) of $425,000
- Warranty expense of $54,500
- Provision expense of $650,000 (the company is being sued and is expecting to pay out $650,000 in 20x7).
There were three temporary differences at the beginning of the year:
- Opening net book value of $5,432,000 vs. undepreciated capital cost of $5,640,000
- On the warranty liability balance of $42,000
- On the pension asset balance of $136,000
The tax rate used to calculate the opening DIT account was 28%.
The following additional information is available for the year 20x5:
- Additions to the buildings and equipment amounted to $250,000.
- One asset was disposed of for $60,000. The original cost of the asset was $70,000. The asset had a net book value of $50,000 on the date of disposal.
- Depreciation expense and capital cost allowance for 20x5 were $210,000 and
$430,000, respectively.
- Pension contributions paid to the pension plan trustee amounted to $250,000.
- Warranty costs incurred totaled $23,800 for the year.
- The company entered into a finance lease for the acquisition of equipment on Jan. 2, 20x5. The fair value of the equipment was $210,000, with an unguaranteed residual value of $15,000 at the end of the 8-year lease term and a residual value of $3,000 at the end of the 10-year useful life. The interest rate implicit in the lease is 5%. The company properly accounted for this lease as a ROU Asset.
The tax rate for the year 20x5 is 25%. At the end of 20x5, the federal government enacted the 20x6 tax rate at 24%.
Required – Prepare the journal entries to record the current portion of income tax expense and the deferred portion of income tax expense for the year 20x5.
Posted Date: