d 1.2.3.4.5.(a)Year20202021Amount Dueper Tax Return$128,400109,000On January 1, 2020, equipment costing $617,300 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, thecompany uses the elective straight-line method over a 5-year life. (Hint: For purposes, the half-year convention as discussed in Appendix 11A must be used.)In January 2021, $215,400 is collected in advance rental of a building for a 3-year period. The entire $215,400 is reported as taxable income in 2021, but $143,600 of the $215,400 isreported as unearned revenue in 2021 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2022 and 2023.The tax rate is 20% in 2020 and all subsequent periods. (Hint: To find taxable income in 2020 and 2021, the related income taxes payable amounts will have to be "grossed up!")No temporary differences existed at the end of 2019. Novak expects to report taxable income in each of the next 5 years.Determine the amount to report for deferred income taxes at the end of 2020, and indicate how it should be classified on the balance sheet.Amount to report for deferred income taxes $

Estimated future tax made while preparing accounts. Deferred tax is estimated based on past and present transactions from financial statements. It is not the actual tax that needs to be paid or is refundable from the revenue authority; it is an accounting entry. It is necessary to account for deferred tax due to difference between accounting profits and taxable profits.1.Amount to be reported for deferred income taxes at the end of 2020There is only a single difference between the accounting base and tax base during the year 2020 that constitutes deferred income tax. This deferred tax is arising on account of difference in method of depreciating the equipment bought in the yearDepreciation as per accounts base = Original value - Residual value / Useful life of assets=> 617,300- 0 / 5 => $ 123,460 for the year 2020Depreciation as per tax base = $ 61,730 (123,460/ 2)As per the half year convention, fixed assets are assumed to be used for only half of the first year of use, irrespective of the date in which they were purchased.Hence only half of the first year depreciation would be allowed as dedcution.Depreciation year on year after the first year would not change under both the bases.Difference between the two bases = $ 123,460- $ 61,730=> $ 61,730Deferred tax = 20% of 61,730=> $ 12,346Since the depreciation is lesser in the tax books,the company would pay more taxes now and would pay less tax in the future (i.e. the 6th year where the remaining half of depreciation would be deducted) ,Hence there arises a Deferred tax asset.