# P18-4 The accountin g income of Grace Corporation and its taxable income for the years 2017 to 2020 are as follows: Year 2017 20

P18-5

P18-4 The accountin g income of Grace Corporation and its taxable income for the years 2017 to 2020 are as follows: Year 2017 2018 2019 2020 Accounting Income \$460,000 420,000 390,000 460,000 Taxable Income \$299,000 294,000 304,200 644,000 Tax Rate 25% 30% 30% 30% The change in the tax rate fron 25% to 30% was not enacted until early in 2018. Accounting income for each year includes an expense of \$40,000 that will never be deductible for tax pur- poses. The remainder of the difference between accounting income and taxable income in each period is due to one reversing difference for the depreciation of property, plant, and equipment. No deferred taxes existed at the beginning of 2017 Instructions (a) Calculate the current and deferred tax expense or benefit for each of the four years. Also calculate the balance of the deferred tax balance sheet account at the end of each fiscal year from 2017 to 2020. (b) Prepare journal entries to record income taxes in all four years. (c) Prepare the bottom of the income statement for 2018, beginning with the line “Income before income tax.” P18-5 The following information applies to Edward Corporation, which reports u nder IFRS. 1. Prior to 2016, taxable income and accounting income were identical. 2. Accounting income was \$1.7 million in 2016 and S1.4 million in 2017 3. On January 1, 2016, equipment costing \$1 million was purchased. It is being depreciated on a straight-line basis ight years for financial reporting purposes, and is a Class 8-20% asset for tax purposes. over e

Given that \$40000 was not allowed as an expense.hence we should add back it to income.

Yr Accounting income Taxable income Tax rate Tax on accounting income Tax on taxable income diff

2017 500000 299000 25%   125000 74750 50250 deftaxliability

2018 460000 294000 30%   138000 88200 49800 ”

2019 430000 304200 30% 129000 91260 37740 ”

2020 500000 644000 30% 125000 1932 (68200) deftaxasset

69590

Hence Balance in deferred tax account at end of 2020= 69590

Amount of tax expense to be recognized in each year= current tax+ Deferred tax

Yr    Tax expense

2017    125000

2018    138000

2019    129000

2020    125000

Every year following entry shall be recognized.

Year 2018:

Income tax a/c     Dr                        138000

To Provision for Income tax a/c   138000

Income statement for 2018:

Accounting income     Taxable income

Income before Income tax                                          460000                                  294000

Income tax (138000)          (88200

Income after Income tax                                              322000                                  205800

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