Use the information for Sorpon Corporation in E18-10, and assume that the company reports accounting income of $180,000 in each of 2015 and 2016, and no reversing differences other than the one identified in E18-10. In addition, assume now that Sorpon Corporation was informed on December 31, 2015, that the enacted rate for 2016 and subsequent years is 25%.
In Exercise 10
Sorpon Corporation purchased equipment very late in 2014. Based on generous capital cost allowance rates provided in the Income Tax Act, Sorpon Corporation claimed CCA on its 2014 tax return but did not record any depreciation as the equipment had not yet been put into use. This temporary difference will reverse and cause taxable amounts of $25,000 in 2015, $30,000 in 2016, and $40,000 in 2017. Sorpon's accounting income for 2014 is $200,000 and the tax rate is 30% for all years. There are no deferred tax accounts at the beginning of 2014.
Instructions
(a) Calculate the deferred tax balances at December 31, 2015, and 2016.
(b) Calculate taxable income and income tax payable for 2015 and 2016.
(c) Prepare the journal entries to record income taxes for 2015 and 2016.
(d) Prepare the income tax expense section of the income statements for 2015 and 2016, beginning with the line "Income before income tax."