Tudor Ltd. began business on January 1, 2020. Tudor's income before income tax for 2020 and 2021
Question:
Tudor Ltd. began business on January 1, 2020. Tudor's income before income tax for 2020 and 2021 are $160,000 and $280,000, respectively. Tudor Ltd. follows IFRS. The following items caused the only differences between accounting income before income tax and taxable income in 2020 and 2021. 1. In 2020, the company received $36,000 for a two-year lease to another company for the extra warehouse space that Tudor was not using. The lease starting date was January 2020 and the ending date was December 2021. The full $36,000 was taxable when received in 2020. 2. Tudor Ltd. had $50,000 installment sales, with payment to be collected over five years at $10,000 per year, starting from 2020. 3. Tudor Ltd. paid an $8,000 non-deductible annual fee for the membership in a local golf club for the company's president in both 2020 and 2021. 4. Meals and entertainment expenses (only 50% of which are ever tax-deductible) of $20,000 were incurred in 2021. 5. The enacted income tax rate was 30% for all years.
Instructions
a. Prepare reconciliation of accounting income and taxable income and calculate income tax payable for both 2020 and 2021.
b. Determine the Deferred Tax Asset or Deferred Tax Liability on December 31, 2020, and 2021, and determine the deferred income tax expense or benefit for280,000 both 2020 and 2021.
c. Prepare the journal entries to record income taxes for both 2020 and 2021.
d. Prepare the income tax expense section of the comparative income statement for 2020 and 2021, beginning with the line “Income before income tax.”
e. Prepare the reconciliation of the effective tax rate to the statutory rate as required for inclusion in the financial statement not on income taxes. Round tax rates to two decimal places.
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon