Question

Flint Inc. reports accounting income of $106,200 for 2020, its first year of operations. The following items cause taxable income to be different than income reported on the financial statements.

1.		Capital cost allowance (on the tax return) is greater than depreciation on the income statement by $16,800.
2.		Rent revenue reported on the tax return is $30,400 higher than rent revenue reported on the income statement.
3.		Non-deductible fines appear as an expense of $24,900 on the income statement.
4.		Flint’s tax rate is 30% for all years and the company expects to report taxable income in all future years.

Assume that the company follows the taxes payable method of accounting for income taxes under ASPE. During the year, Flint Inc. made tax instalment payments of $46,910.

QUESTIONS:

A) Calculate the taxable income and income tax expense for the year ended December 31, 2020.

B) Prepare the journal entry to record income taxes at December 31, 2020.

C) Prepare the income statement for 2020, beginning with the line “Income before income tax.”

D) Provide the balance sheet presentation for any resulting income tax accounts at December 31, 2020.

Answer 1

1)
Accounting income	$ 106,200.00
Permanent differences:
Non-deductible fines	$   24,900.00
	$ 131,100.00
Reversing differences:
Excess of CCA over depreciation	$ (16,800.00)
Excess rent collected over rent earned	$   30,400.00
Taxable income	$ 144,700.00
Current income taxes – 30%	$   43,410.00
2)
Account titles and Explanations	Debit	Credit
Current Tax Expense	$   43,410.00
Income Tax Payable		$   43,410.00
Deferred Tax Asset (30,400 x 30%)	$     9,120.00
Deferred Tax Benefit		$     4,080.00
Deferred Tax Liability		$     5,040.00
3)
Income before income tax		$ 106,200.00
Income tax expense
Current	$   43,410.00
Deferred (benefit)	$   (4,080.00)	$   39,330.00
Net income		$   66,870.00
4)
Balance Sheet (Partial)
Non-current assets
Deferred tax asset	$     4,080.00
Current assets
Future tax asset	$     9,120.00
Non-current liabilities
Future tax liability	$     5,040.00