Problem
I. Crane Corp. had a Deferred Tax Asset account with a balance of $102,300 at the end of 2022 due to a single temporary difference of $341,000 related to warranty liability accruals. At the end of 2023, this same temporary difference has increased to $373,500. Taxable income for 2023 is $913,000. The tax rate is 30% for all years.
i. Calculate and record income taxes for 2023, assuming that it is more likely than not that the deferred tax asset will be realized.
ii. Record income tax expense, deferred income taxes, and income taxes payable for 2022, assuming that it is more likely than not that none of the deferred tax asset will be realized.
II. Crane Corporation purchased equipment very late in 2023. Based on generous capital cost allowance rates provided in the Income Tax Act, Crane claimed CCA on its 2023 tax return but did not record any depreciation because the equipment was being tested. This temporary difference will reverse and cause taxable amounts of $33,100 in 2024, $30,300 in 2025, and $44,500 in 2026. Crane's accounting income for 2023 is $235,800 and $193,800 in each of 2024 and 2025, and the tax rate is 30% for all years. There are no deferred tax accounts at the beginning of 2023.
i. Calculate the deferred tax balances at December 31, 2024 and 2025.