Earlton Inc. began operations in 2019. Due to the untimely death of its founder, Earl Davies, the company was wound up in 2021. The following table provides information on Earlton’s income over the three years:

The statutory income tax rate remained at 30% throughout the three years.

Required:

a. For each year and for the three years combined, compute the following: 

i. Income tax expense under the taxes payable method 

ii. The effective tax rate (tax expense ÷ pre-tax income) under the taxes payable method.

iii. Income tax expense under the accrual method 

iv. The effective tax rate under the accrual method 

b. Briefly comment on any differences between the effective tax rates and the statutory rate of 30%.

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Income before tax Taxable income 2019 $10,000 nil 2020 $80,000 60,000 2021 $50,000 80,000