Question

Concord Enterprises Ltd., a private company following ASPE earned accounting income before taxes of $1,713,000 for the year ended December 31, 2020.  

During 2020, Concord paid $222,000 for meals and entertainment expenses.

In 2017, Concord’s tax accountant made a mistake when preparing the company’s income tax return. In 2020, Concord paid $20,000 in penalties related to this error. These penalties were not deductible for tax purposes.

Concord owned a warehouse building for which it had no current use, so the company chose to use the building as a rental property. At the beginning of 2020, Concord rented the building to SPK Inc. for two years at $258,000 per year. SPK paid the entire two years’ rent in advance.

Concord used the straight-line depreciation method for accounting purposes and recorded depreciation expense of $396,000. For tax purposes, Concord claimed the maximum capital cost allowance of $621,000.

Concord began to sell its products with a two-year warranty against manufacturing defects in 2020 to match a warranty introduced by its main competitor. In 2020, Concord accrued $592,000 of warranty expenses: actual expenditures for 2020 were $281,000with the remaining $311,000 anticipated in 2021.

In 2020, Concord was subject to a 35% income tax rate. During the year, the federal government announced that tax rates would be decreased to 33% for all future years beginning January 1, 2021.

Prepare the journal entries to record current and future income taxes for 2020.

The accounts are:

1)

Dr current tax expense   

Cr Income tax payable

2)

Dr Future tax asset

Cr future tax benefit

Answer 1

Solution:-