The records for Smiley Company show the following for 2015: Revenue recorded for the year was $600,000. Cash collected in the year was $500,000.

The records for Smiley Company show the following for 2015: 

  • Revenue recorded for the year was $600,000.  Cash collected in the year was $500,000.  The tax rule is that it is only subject to tax as the cash is received. 
  • The company paid a fine of $4,500.  These fines are not deductible for tax purposes. 
  • Dividends received from an U.S. subsidiary was $10,000. 
  • Machinery was acquired in January for $400,000. Straight-line amortization over a 20-year life (no residual value) is used. For taxes, CCA is used and Bridge may deduct 30% for 2015.  (Ignore the ½ year rule for income tax). 
  • Dividends received from a Canadian corporation were $25,000. 
  • The estimated warranty liability related to 2015 sales was $20,000. Repair costs under warranties during 2015 were $14,000. The remainder will be incurred in 2016.  The tax rule is that warranty expenses are only deductible in the period that the actual warranty work is performed. 
  • Pretax financial income is $900,000. The tax rate is 35%.  December 31 year end. 
  • The company owns a warehouse that is normally vacant.  The company collected one year’s rent in advance, $24,000, on December 1, 2015 for use by another firm.  Tax rules require companies to record taxable income when cash is received. 


(1) Prepare a 3-column schedule that helps in preparing the income tax entry for 2015, or prepare another type of schedule that helps determine the tax entry for 2015.   

(2) Prepare the journal entries to record income taxes for 2015. 

(3) Prepare an income statement for 2015  starting from the ‘net income before tax’ line. 

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