Anthony Ltd. began business on January 1, 2011. At December 31, 2011, it had a $3,000 balance in the future tax liability account that pertains to property, plant, and equipment previously acquired at a cost of $1 million. The tax basis of these assets at December 31, 2011, was $940,000; the accounting basis was $950,000. Anthony's income before taxes for 2012 was $80,000. Anthony Ltd. follows the PE GAAP future income taxes method.
The following items caused the only differences between accounting income before income taxes and taxable income in 2012:
1. In 2012, the company paid $75,000 for rent; of this amount, $25,000 was expensed in 2012. The other $50,000 will be expensed equally over the year 2013 and 2014 accounting periods. The full $75,000 was deducted for tax purposes in 2012.
2. Anthony Ltd. pays $12,000 a year for a membership in a local golf club for the company's president.
3. Anthony Ltd. now offers a one-year warranty on all its merchandise sold. Warranty expenses for 2012 were $12,000. Cash payments in 2012 for warranty repairs were $6,000.
4. Meals and entertainment expenses (only 50% of which are ever tax deductible) were $16,000 for 2012.
5. Depreciation expense was $50,000 and CCA was $55,000 for 2012. No new assets were acquired in the year, and there were no asset disposals.
Income tax rates have not changed over the past five years.
Instructions
(a) Calculate the balance in the Future Income Tax Asset/Liability account at December 31, 2012.
(b) Calculate income taxes payable for 2012.
(c) Prepare the journal entries to record income taxes for 2012.
(d) Prepare the income tax expense section of the income statement for 2012, beginning with the line "Income before income taxes."
(e) Indicate how future income taxes should be presented on the December 31, 2012 balance sheet.
(f) How would your response to (e) change if Anthony reported under IFRS?