Decklin Ltd (DL) is a retailer with a December 31 year-end. The comptroller at DL has recently resigned, and you were hired to assist the senior accountant to prepare the required 20X3 year-end adjustments. Your work is pretty much complete, except for the income tax journal entries that remain to be prepared. You have summarized the relevant information as follows: Income before income taxes amounts to $310,000 for 20X3. At the end of 20X2, DL had a loss carryforward of $80,000. On 31 December 20X2, management considered that it was more probable than not that future taxable income would be sufficient to take advantage of this loss. 

During 20X3, DL received intercorporate dividends totaling $70,000 which are not taxable. At the beginning of 20X3, the undepreciated capital cost amounted to $950,000 and the carrying value of capital assets was $1,200,000. The amortization expense and capital cost allowance deduction amount respectively to $200,000 and $230,000 for 20X3. There were no acquisitions or disposals of fixed assets in 20X3. In 20X3, the company incurred entertainment costs of $40,000 out of which 50 % is not deductible for tax purposes. DL has introduced a defined benefit pension plan in 20X3. The total costs related to this plan amount to $160,000 for 20X3 and are detailed as follows: Service cost: $150,000; Net interest: $10,000; Remeasurements: $0. The amount deductible for tax purposes corresponds to the contributions of $100,000 made by DL to the plan in 20X3. 

At the beginning of 20X2, DL signed an operating lease (as a lessee). Annual payments made under this lease contract are $100,000 and are totally deductible for tax purposes. When DL signed this contract, the lessor required an additional lump sum payment of $40,000 which was immediately deductible for tax purposes. For accounting purposes, DL considered this amount as prepaid rent and amortizes it over a period of four years. A prepaid rent of $30,000 was reported on the balance sheet on 31 December 20X2. DL made income tax installments of $60,000 in 20X3. The company also received a tax refund of $20,000 in relation to its tax loss of 20X2. Indeed, part of this loss was carried back to recover income taxes paid in previous years. The tax rate was 30 % in 20X2. On 30 November 20X3, it increased to 35 %, and this rate applied to the 20X3 fiscal year. On 15 January, the government announced another increase in corporate tax rates applicable from 1 January 20X4. As a consequence, DL's tax rate increased to 40 %.

Required:

Prepare the journal entries to record the income tax expense for 20X3.

Prepare the lower part of the income statement for 20X3 that will show the current and future portions of the income tax expense.

Prepare a partial balance sheet as of 31 December 20X3 that will present the accounts and amounts related to income taxes.

Prepare a partial cash flow statement for 20X3 that will present the accounts and amounts related to income taxes.

Prepare the effective tax rate required disclosures for 20X3. Prepare this note using percentages.

Answer rating: 100% (QA)

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