Year 1 Year 2 Year 3 Accounting Income (loss) $178,000 $340,000 $(620,000)
A Capital Asset was purchased on January 1 of year 1 at a cost of $190,000.
Depreciation is $20,000 per year.
CCA is $19,000 in year 1, $25,000 in year 2 and $14,000 in year 3.
Warranty expense accrued is as follows $9,000 in year 1, $10,000 in year 2 and $8,000 in year 3.
Actual warranty claims paid: $6,000 in year 1, $10,000 in year 2 and $11,000 in year 3.
Golf Dues equal to $12,000 per year was paid each year.
Tax rates are 30% in year 1, 33% in year 2 and 26% in year 3.
Assume that it is probable that the loss carryforward will be used in the future years.
Required: SHOW YOUR CALCULATIONS. Prepare in Word or Excel.
- Calculate Taxable Income and Income tax payable. Prepare the tax reconciliations for all three years (9 marks)
- For year 3 answer the following: what is loss carryback? What is Loss carryforward? What is the refund? What is the tax benefit? (2 marks)
- Prepare the tax journal entries for all three years assuming IFRS (9 marks)
(note: show how you obtain your adjustment for the Deferred Income Tax accounts) - Prepare the Partial Balance sheet and Partial Income statement for years 1-3 AND the Note Disclosure in Year 3 (6 marks)
- Assume the company had Taxable Income equal to $35,500 in year 4 with no adjustment required for Temporary differences. What would be the Income Tax journal entries required in year 4 to record the tax payable and the use of the prior year’s loss carryforward? Assume year 4 had a tax rate of 28%. (3 marks)
What is the balance of “Deferred Income Tax-loss” account at end of year 4? (1 mark)
