Listed in the table below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether it is a Permanent or Reversible difference and it will create a deferred tax asset (DTA) or a deferred tax liability (DTL).

Item	Permanent or Reversible difference; DTA or DTL (if Reversible difference)
Example: Rent collected in advance	Reversible, DTA
The excess amount of accrued pension expense over the amount paid.
Penalty assessed by CRA for late submission of income tax return.
The estimated gross profit on a long term construction contract that is reported in the income statement, with some of the profit being deferred for tax purposes.

Part B. (12 marks).

The records for Mango Inc., a public corporation, show the following data for calendar 2020:

1. Machinery was acquired in January 2020 for $ 400,000. Mango uses straight-line depreciation over a ten-year life (no residual value). For tax purposes, Mango deducted CCA of $76,000 for 2020.
2. Development costs capitalized in 2020 were $200,000 and the amount was tax deductible in 2020. Amortization of development costs in 2020 was $40,000.
3. Dividends received from a Canadian corporation (nontaxable) were $ 19,300.
4. Premium paid for life insurance for key officers (non-deductible) was 2,000.
5. The estimated warranty liability related to 2020 sales was $ 32,600. Warranty repair costs paid during 2020 were $ 25,400. The remainder will be paid in 2021.
6. A loss of $125,000 was accrued for financial reporting purposes because of pending litigation. This amount is not tax deductible until the period when the loss is realized, which is estimated to be in 2024.
7. Pre-tax accounting income is $ 525,000. The enacted income tax rate is 30%.

Instructions

a) Prepare a schedule (starting with pre-tax accounting income) to calculate Mangos taxable income for 2020. (7 marks)

Question #5 (continued)

Pre-tax accounting income	$525,000
Taxable income

b) Prepare the required adjusting journal entries to record income taxes (i.e. to record the current income tax expense, deferred income tax expense and deferred tax asset/liability) for 2020. Assume that the beginning balance in the deferred tax asset or liability is zero. (5 marks)

	Debit	Credit