Problem
Shawn Ltd commenced operations on 1 July 2021. The following has been extracted from their internal reports for the first year of operations:
Income Statement (Extract) for the year ended 30 June 2022
Gross profit.............................................................................................. 980,000
Expenses
Administration expenses........................................................... 60,000
Doubtful debts expense ................................................9 000
Salaries and on-costs............................................................... 300 000
Interest....................................................................................... 30 000
Long-service leave (LSL).......................................................... 42 000
Warranty expenses..................................................................... 45 000
Depreciation expense - plant..................................................... 50 000
Insurance expense...................................................................... 30 000 566 000
Accounting profit before income tax expense 414 000
Assets and liabilities as disclosed in the balance sheet as at 30 June 2022 were:
Assets
Cash...................................................................................................... 40,000
Inventory............................................................................................... 116 000
Accounts Receivable (net of $4,000 D. Debt Allowance)................... 150 000
Prepaid insurance.................................................................................. 15 500
Plant - cost.............................................................................. 200,000
Accum Depn - Plant.................................................................. 50 000 150 000
Liabilities
Accounts Payable................................................................................. 115 000
Provision for warranty.......................................................................... 37 500
Provision for long-service leave........................................................... 30 000
Loan Payable........................................................................................ 179 000
Additional information:
Plant is depreciated straight-line with no residual value over four years for accounting purposes and two years for taxation purposes.
Bad debts written off during the year were $5,000.
Insurance, warranty and LSL are deductible for tax purposes when paid.
The tax rate is 30%
Task
a. For year ending 30 June 2022, calculate taxable income and its current tax consequences, clearly showing amounts for tax expense and tax payable.
b. Showing all relevant workings using a tax worksheet, prepare journal entries for current and deferred tax consequences for the year ended 30 June 2022 ((narrations are required).