Waterway Services Ltd. follows ASPE and had earned accountingincome before taxes of $518,000 for the year ended December 31,2020.
During 2020, Waterway paid $80,000 for meals and entertainmentexpenses.
In 2017, Waterway’s tax accountant made a mistake when preparingthe company’s income tax return. In 2020, Waterway paid $9,700 inpenalties related to this error. These penalties were notdeductible for tax purposes.
Waterway owned a warehouse building for which it had no currentuse, so the company chose to use the building as a rental property.At the beginning of 2020, Waterway rented the building to TrungInc. for two years at $56,000 per year. Trung paid the entire twoyears’ rent in advance.
Waterway used the straight-line depreciation method for accountingpurposes and recorded depreciation expense of $311,600. For taxpurposes, Waterway claimed the maximum capital cost allowance of$465,300. This asset had been purchased at the beginning of theyear for $3,069,000.
In 2020, Waterway began selling its products with a two-yearwarranty against manufacturing defects. In 2020, Waterway accrued$294,000 of warranty expenses: actual expenditures for 2020 were$90,600 with the remaining $203,400 anticipated in 2021.
In 2020, Waterway was subject to a 25% income tax rate. During theyear, the federal government announced that tax rates would bedecreased to 23% for all future years beginning January 1,2021.
Prepare the journal entries to record current and future incometaxes for 2020
