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Bentall Ink is a chain of tattoo parlors that follows IFRS. The following data is...

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Accounting

Bentall Ink is a chain of tattoo parlors that follows IFRS. The following data is for Year 8:

Golf club dues were $20,000.

Automated tattoo machinery was acquired on January 1, Year 7, for $200,000. Straightline depreciation is over a 10year life with a $20,000 residual value. For taxes, the 30% rate class is used, and Bentall Ink applied the CRA one-and-a-half-year rule in Year 7.

On December 31, Year 8, Bentall Ink accrued a provision for legal expense of $30,000. The estimated legal liability of $30,000 relates to four pending lawsuits. In addition to the $30,000 provision, legal costs paid out in cash during Year 8 were $60,000. These related to lawsuits started and settled during Year 8. Bentall Ink believes that the new automated equipment will reduce the number of lawsuits.

Pretax accounting income for Year 8 is $900,000. The income tax rate is 25%.

Instructions

  1. Prepare a schedule (starting with pretax accounting income) to calculate taxable income. On your schedule, indicate a subtotal for accounting income after permanent differences.

  2. Prepare the tax-related journal entries for Year 8.

  3. What is the dollar amount of income tax expense on the Year 8 Bentall Ink income statement?

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