Scarlett Corporation reported accounting income before taxes as follows: 20X4, $150,000; 20X5, $92,000. Taxable income for each year would have been the same as pre-tax accounting income except for the tax effects, arising for the first time in 20X4, of $2,400 in rent revenue, representing $400 per month rent revenue collected in advance on 1 October 20X4, for the six months ending 31 March 20X5. Rent revenue is taxable in the year collected. The tax rate for 20X4 and 20X5 is 40%, and the year-end for both accounting and tax purposes is 31 December. The rent revenue collected in advance is the only difference, and it is not repeated in October 20X5.
Required:
Is this a temporary difference? Why or why not?
What is the accounting carrying value for the unearned rent at the end of 20X4? The tax basis? Explain.
Calculate taxable income, and income tax payable, and prepare journal entries for each year-end.
Prepare a partial statement of profit and loss for each year, starting with pre-tax accounting income.
What amount of deferred income tax would be reported on the 20X4 and 20X5 statements of financial position?