Novak Corporation purchased equipment very late in 2020. Based on generous capital cost allowance rates provided in the Income Tax Act, Novak Corporation claimed CCA on its 2020 tax return but did not...

Novak Corporation purchased equipment very late in 2020. Based on generous capital cost allowance rates provided in the Income Tax Act, Novak Corporation claimed CCA on its 2020 tax return but did not record any depreciation because the equipment was being tested. This temporary difference will reverse and cause taxable amounts of $30,700 in 2021, $31,300 in 2022, and $45,000 in 2023. Novak’s accounting income for 2020 is $236,000 and $202,000 in each of 2021 and 2022, and the tax rate is 30%. There are no deferred tax accounts at the beginning of 2020. Novak Corporation was informed on December 31, 2021 that the enacted rate for 2022 and subsequent years is 25%.

a) Calculate the deferred tax balances at December 31, 2021 and 2022.

b) Calculate taxable income and income tax payable for 2021 and 2022.

c) Prepare the income tax expense section of the income statement for 2021, beginning with the line “Income before income tax.

d) Prepare the income tax expense section of the income statement for 2022, beginning with the line “Income before income tax.”