BC Co. has the following information available for the year ended December 31, 2020 in advance of preparing the provision for income taxes.

• Loss from continuing operations: $1,725,000
• OCI arising from increased market value of portfolio: $158,000
• Included in reported loss from continuing operations is the following:
  • Depreciation of capital assets……………………….…….$750,000
  • Impairment write down of intangible assets……. 50,000
  • Unusual loss due to unseasonal flooding…………. 150,000
  • Meals and entertainment…………………………………. 80,000
  • Life insurance receipt on death of CEO……………. 200,000
  • Warranty expense……………………………………………. 200,000
  • Revenue recognized on custom project…………. 175,000
  • Rent expense………………………………………………….. 60,000

• Other information gathered:

• No CCA was claimed in 2020; the balances of Undepreciated Capital Cost and Net Book Value of capital assets at the beginning of the year are $4,000,000 and 5,300,000 respectively with no additions or disposals in the year.
• Warranty payments in 2020 amounted to $200,000; the beginning of year balance in estimated warranty liability was $425,000
• The custom project was initiated at the beginning of 2019 when a customer required special design work and advanced BC Co. $400,000 at that time. The job was multiple deliverables and revenue is recognized as the deliverables are completed. $100,000 was recognized in 2019 from the advance as revenue from this project.
• Life insurance proceeds are non taxable and asset impairments are non deductible for tax purposes.
• Rent expense arises from a three year lease in the total amount of $180,000 that was paid in advance on January 1, 2018.
• BC Co.’s operating loss in 2020 is unusual and can be attributable to the cancellation or deferral of major contracts with two major clients. Prior results are more reflective of the business:

Taxable incomes and the associated statutory tax rates (in brackets) are as follows: 2016: $128,000 (30%); 2017: $240,000 (30%); 2018: $320,000 (28%); 2019: $450,000 (28%)

• To the extent available, BC Co. will recognize the benefit of available loss carry forward in 2020.
• Current year’s statutory tax rate is 26%.

Required: Prepare, with supporting analysis, all relevant tax entries for 2020

Current tax reconciliation:

Deferred Tax Analysis:

Item

GAAP Balance 31/12/20

Tax ‘Balance’ 31/12/20

Temp. Diff FT/FD

Ending DTA/DTL

Begin DTA/DTL

Adjustment

Answer rating: 100% (QA)

To prepare the relevant tax entries for BC Co in 2020 we need to calculate the current tax expense deferred tax assets and deferred tax liabilities based on the information provided Heres the breakdow... View the full answer