Question

Hogan Ltd. started as a manufacturing company on January 1, 2021. On January 1, 2021, Hogan purchased $60,000 of equipment which it is amortizing on a straight-line basis over 5 years for accounting purposes under IFRS. The equipment is subject to a 15% CCA rate for income tax purposes, and is eligible for the Accelerated Investment Initiative (i.e. 1.5 times the CCA rate) in the year of acquisition. In 2021, Hogan reported net income before income taxes of $425,000. Included on the company's income statement was meals and entertainment expense of $44,000. At the end of 2022, Hogan reported net income before taxes of $510,000, and meals and entertainment expense of $38,000. The income tax rate for 2021 was 23%. On March 15, 2022, the tax rate for 2022 and later years dropped to 22%. This rate change was not known at the end of 2021.| REQUIRED: Prepare the journal entries required to record Hogan Ltd.'s income taxes for 2021 and 2022. Show all your calculations.

Answer 1

Journal Entries as per following:

Sr.No.	Jornal Enrty For Year 2021	Amount
1	Equipment Account………..Debit	$60,000
	To Bank Account…………Credit	$60,000
2	Depreciation Account………..Debit	$13,500
	To Equipment Account……….Credit	$13,500
3	Meal & Entertainment Expenses Account………Debit	$22,000
	To Bank Account……….Credit	$22,000
4	Income Tax Expense Account……..Debit	$89,585
	To Cash/Bank Account……..Credit	$89,585

Sr.No.	Jornal Enrty For Year 2022	Amount
1	Depreciation Account………..Debit	$9,000
	To Equipment Account……….Credit	$9,000
2	Meal & Entertainment Expenses Account………Debit	$19,000
	To Bank Account……….Credit	$19,000
3	Income Tax Expense Account……..Debit	$106,040
	To Cash/Bank Account……..Credit	$106,040

Notes and Calculation Table:

Description	2021	2022	Remarks
Net Income Before Income Taxes	$425,000	$510,000	Given in Question
Depreciation	$13,500	$9,000	In a year of Acquisition, as per Accelerated Investment Initiative, Depreciation charges 1.5 Times of CCA Rate of 15% i.e. 22.5% and in following year charged as per Normal CCA Rate of 15 %, It is assumed that equipment deployed on the same day of Acquisition.
Meals & Entartainment Expenses	$22,000	$19,000	Only 50% Deduction allowed in case Meals & Entertainment
Net Taxable Income	$389,500	$482,000
Income Tax Rate	23%	22%	Given in Question
Income Tax	$89,585	$106,040