A private company with a large amount of long-term debt reports under IFRS. The debt-financing indenture must provide quarterly financial statements to the lender. They pay tax at the rate of 20% on the first $200,000 of income and 40% on any income in excess of $200,000. During 2015, the company earned $500,000 and paid tax at an average rate of 32%. Similar results were expected for 2016.
the company realized the following actual results for the year ended December 31, 2016:
Quarter Income (loss)
1 $100,000
2 (150,000)
3 200,000
4 400,000
Required:
Calculate income tax expense (recovery) for each quarter in 2016 and for the year in total under the:
a) discreet approach and b) integral approach