Tranquility Properties has determined that its 2022 accounting income is $1,780,000. Tranquility had acquired equipment in the prior year at a cost of $840,000. The equipment is being depreciated over 8 years for financial reporting purposes, has a residual value of $40,000 and is a Class 8 – 20% for tax purposes with half in the year of acquisition. Depreciation was $100,000 in the prior year – 2021. Tranquility had a deferred tax asset on its statement of financial position in the amount of $4,000 resulting from differences in depreciation and CCA on equipment. The tax rate is 25% for all years. Tranquility follows IFRS.

During 2022, the following items caused taxable income to be different than accounting income:

• For tax purposes, CCA was $151,200 in 2022. The year-end book value is $640,000 and the tax value is $604,800.
• In 2022 Tranquility Inc. paid $60,000 rent in advance for 2023 ($30,000) and 2022 ($30,000). The Canada Revenue Agency (CRA) allows the deduction of actual rent payments when they are paid. By December 31, 2022, Tranquility had a balance of $30,000 in Prepaid Rent.
• In 2022, dividends of $30,000 were received from a taxable Canadian corporation and included in accounting income. These dividends are not taxable.
• In 2022, a golf club membership of $6,500 was an expense in arriving at accounting income. This is not an allowable deduction for tax purposes.
• In 2022, Tranquility Inc. offered a warranty on goods sold. Warranty expenses for 2022 were $32,600 and warranty cash payments in 2022 were $10,600. The balance of the warranty liability on the statement of financial position is $22,000. The Canada Revenue Agency (CRA) allows the deduction of actual warranty costs when they are paid.

Required:

( a ) Calculate taxable income for 2022.

( b ) Calculate current income taxes payable for 2022.

( c ) Calculate the balance of any deferred income taxes asset and deferred income tax liability at December 31, 2022. For each item identify any balances as either a deferred tax asset or a deferred tax liability.

(d ) Prepare the journal entry(s) to record current income taxes for 2022 and record an entry for of the deferred tax determined in part c.

Answer rating: 100% (QA)

Answer Solution a b c Working notes Calculation of taxable income Dec 31 2022 Pretax accounting inco... View the full answer