Martin  Limited, a public corporation using IFRS, in 2018, the first year of its operations, reported the following information regarding its operations:  

a.    Income before tax for the year was $2,500,000 and the tax rate was 38%.
b.    Depreciation was $240,000, and CCA was $134,000.  Net book value at year-end was $1,680,000, while UCC was $1,786,000.
c.    The warranty program generated an estimated cost (expense) on the statement of earnings of $514,000 but the cash paid out for warranty repairs was $348,000. The $166,000 liability resulting from this was shown as a current liability. On the income tax return, the cash paid is the amount deductible.

d.    Golf club dues of $30,000 were included in the statement of earnings but were not allowed to be deducted for tax purposes.
In 2019, the second year of its operations, Martin Limited reported the following information:
a.     Income before income tax for the year was $2,750,000, and the tax rate, enacted in 2019, was 40%.
b.    Depreciation was $240,000, and the CCA was $740,000. Net book value at year-end was $1,440,000, while UCC was $1,046,000.
c.    The estimated costs of the warranty program were $574,000, and the cash paid out for warranty repairs was $484,000. The liability had a balance of $256,000.

Required:
1)   Calculate taxable income and income tax payable for 2018 and 2019.  
2. Prepare the journal entry (entries)  to record income tax expense, deferred taxes, and income tax payable in the first and second years of operations i.e. 2018 and 2019.

Answer rating: 100% (QA)

Year 1 Calculation of taxable profit Income before tax 2500000 Ad... View the full answer