Genaro Publishing Ltd. is a publisher of a wide range of consumer magazines and newsletters. The company reported the following on its December 31, 2021 balance sheet:

Income tax receivable $16,250

Deferred tax asset $38,400

The net deferred tax asset relates to two temporary differences: subscription revenue and depreciation/CCA.

The company receives subscription payments in advance on the magazines it publishes, the amounts are taxed immediately when received but for accounting purposes are recorded as revenue as they are earned over the subscription period.

On December 31, 2021, the balance in the unearned revenue account was $247,000 and it was expected to be earned as follows:

2022 $95,000

2023 80,000

2024 72,000

$247,000

The company’s printing equipment is currently being depreciated on a straight-line basis and the carrying amount (ie: book value) of the equipment on December 31, 2021 was $357,000.

For tax purposes the equipment is depreciated on the declining balance method using a 20% rate and the tax base (undepreciated capital cost) on December 31, 2021, was $238,000. (Declining balance applies the CCA rate to the undepreciated capital cost at the beginning of the year for that years’ CCA claim).

The income tax receivable resulted from a taxable loss suffered in 2021 that was fully carried back to previous taxation years-there is no loss carryforward.

The tax rate in effect on December 31, 2021 was 30%.

In 2022, the company reported the following:

Net income before tax $750,000

Tax refund received 16,250

Depreciation expense 59,000

Capital cost allowance the maximum allowed

New subscriptions received in the year, unearned at year-end 68,000

Fines paid due to contamination of a factory site

(not/never tax deductible) 12,000

Dividends received from an investment that are non-taxable 7,500

Required:

a) Reconciliation for accounting income to taxable income for 2022.

b) All tax related journal entries for 2022.

c) Determine the December 31, 2022 balance in deferred tax asset or liability related to each timing difference as well as the current tax payable. Discuss whether the amounts are shown as current or non-current classification.

d) Provide the income statement presentation beginning with net income before tax for 2022

Answer rating: 100% (QA)

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