Question

Vanier Corporation reported the following information at the beginning of its current fiscal year:

Deferred income tax asset (warranties) $ 2,400 (dr)

Deferred income tax liability (depreciable assets) 10,500 (cr)

During the year, Vanier reports the following information:

-Pre-tax income was $850,000 and the tax rate was 32%;

-Depreciation expense was $75,000 and the CCA was $80,000. The carrying amount of property, plant, and equipment at the end of the year was $420,000 while the UCC was $380,000;

-Warranty expense was reported at $40,000 while actual cash paid out was $38,000. The warranty liability had a year-end balance of $10,000.

-No other items affected deferred tax amounts other than these transactions.

Required:

Prepare the journal entries to record income tax for the year. Provide the income statement section commencing with “Net income before taxes.”

Answer 1

C D E G H 2 1) Prepare journal entries: 3 Date Accounts title and explanation 1 Deferred Income Tax liability(depreciable assets) Income Tax payable Being DTA created for depreciation difference) Working note Deferred tax assets account Particulars Debit Particulars Opening balance $2.400 Income tax payable Ac Balance Cld $2,400 Credit $640 $1,760 $2,400 Debit Credit2) Prepare income statement section $1,600 commencing with "Net income $1.600 before taxes." Particulars Amount Profit before tax(PBT) $850,000 $640 Tax @ 32% $272.000 $640 Add: $640 Less: -$1.600 Total Income tax payable $274,240 2 Income tax payable Alc Deferred tax asset (Warranties) (Being tax payable on warranty expenses disallowed up to 2000.) Deferred tax liability account Particulars Debit Particulars Income tax payable Ac $1,600 Opening balance balance Cld $8.900 Credit $10,500 $10,500 $10,500

C D E Working note 2 1) Prepare journal entries: Date Accounts title and explanation Deferred Income Tax liability(depreciable assets) Income Tax payable (Being DTA created for depreciation difference) Particulars Opening balance =J10 Deferred tax assets account Debit Particulars Credit 2400 Income tax payable Ac 640 Balance Cld =L6-L4 =SUM(J4:J5) 2400 Prepare income statement section commencing with "Net income before taxes." Particulars Amount Profit before tax(PBT) 850000 Tax @ 32% =G7*32% Add: =L4 =-J10 Total Income tax payable =G8+G9-G10 Income tax payable Alc Deferred tax asset (Warranties) (Being tax payable on warranty expenses disallowed up to 2000.) Deferred tax liability account Particulars Debit Particulars Income tax payable Ac 1600 Opening balance balance Cld =J13-J10 Credit 10500 Less: 10500 =SUM(L10:L12)