Zak Corp. purchased depreciable assets costing $600,000 on January 2, 2020. For tax purposes, the company uses CCA in a class that has a 40% rate. Assume these assets are considered “eligible equipment” for purposes of the Accelerated Investment Incentive (under the AII, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate). For financial reporting purposes, the company uses straight-line depreciation over five years. The enacted tax rate is 30% for all years. This depreciation difference is the only reversing difference the company has. Assume that Zak has income before income tax of $340,000 in each of the years 2020 to 2024.
Instructions
a. Calculate the amount of capital cost allowance and depreciation expense from 2020 to 2024, as well as the corresponding balances for carrying amount and undepreciated capital cost of the depreciable assets at the end of each of the years 2020 to 2024. Round to the nearest dollar.
b. Determine the amount of taxable income in each year from 2020 to 2024.
c. Determine the amount of deferred taxes that should be reported in the SFP for each year from 2020 to 2024.
d. Prepare the journal entries to record income taxes for each year from 2020 to 2024. Round to the nearest dollar.
e. Prepare the income tax entry(ies) to record income taxes for each year, assuming the management and owners have decided on the taxes payable method.
