On January 1, 2010, Drugz Inc., a large pharmaceutical company, commenced busine
ID: 2581644 • Letter: O
Question
On January 1, 2010, Drugz Inc., a large pharmaceutical company, commenced business operations in Canada. The following information is available:
20X4
20X5
20X6
20X7
Reported Income (loss) before tax
$250,000
225,000
$115,000
($900,000)
Tax rate - enacted in each year
30%
30%
36%
36%
Depreciation
$400,000
$400,000
$400,000
$400,000
Capital cost allowance
$625,000
$625,000
$225,000
$225,000
Required:
Prepare journal entries to record all tax related effects for 20X6 and 20X7. All supporting calculations should be shown. Assume that the company carries back all its losses first. Further, it is judged more likely than not that the company will generate taxable incomes in future years.
HINT: Determining the taxable income would be very useful.
20X4
20X5
20X6
20X7
Reported Income (loss) before tax
$250,000
225,000
$115,000
($900,000)
Tax rate - enacted in each year
30%
30%
36%
36%
Depreciation
$400,000
$400,000
$400,000
$400,000
Capital cost allowance
$625,000
$625,000
$225,000
$225,000
Explanation / Answer
computation of taxable income for the year 2016
reported income after depreciation before tax 115000
add:depreciation 400000
Less:capital cost allowance as per income tax (225000)
Taxable income 290000
computation of deferred tax
Taxable income 290000
accounting income(reported income) (115000)
Difference 175000
computation of taxable income for the year 2017
reported income after depreciation before tax (900000)
add:depreciation 400000
Less:capital cost allowance as per income tax (225000)
taxable income (775000)
computation of deferred tax
Taxable income (775000)
accounting income(reported income) (900000)
Difference 125000
Deferred Tax Calculation Description Closing Opening Aggregate of all Deferred tax asset 0 0 Aggregate of all Deferred tax liability -45000 -90000 Net Deferred Tax Asset/(Liability) -45000 -90000 Accounting Entry Amount Amount Deferred tax liability Dr. 45000 To Deferred tax income 45000 (Being reversal of deferred tax liability during the year) Balance Sheet Closing Opening Non-current liabilities Deferred tax liabilities (Net) 45000 90000 Non-current assets Deferred tax assets (Net) Statement of Profit & Loss Current Period Previous Period Profit before tax Tax expense Current tax Deferred Tax Expense/(Income) -45000 Notes to Financial Statement Closing Opening Deferred tax asset on:- Sub Total 0 0 Deferred tax liability on:- Fixed assets 45000 90000 Sub Total 45000 90000 Net Deferred Tax Asset/(Liability) -45000 -90000Related Questions
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