Anthony Ltd. began business on January 1, 2013. At December 31, 2013, it had a $6,000 balance in the deferred tax liability account that pertains to property, plant, and equipment previously acquired at a cost of $1.2 million. The property, plant, and equipment is being depreciated on a straight-line basis over six years for financial reporting purposes, and is a Class 8-20% asset for tax purposes. Depreciation expense for financial reporting purposes was $100,000 for 2013. Anthony's income before income tax for 2014 was $80,000. Anthony Ltd. follows the ASPE future/deferred income taxes method.
The following items caused the only differences between accounting income before income tax and taxable income in 2014.
1. In 2014, the company paid $75,000 for rent; of this amount, $25,000 was expensed in 2014. The other $50,000 will be expensed equally over the 2015 and 2016 accounting periods. The full $75,000 was deducted for tax purposes in 2014.
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 2014 were $12,000. Cash payments in 2014 for warranty repairs were $6,000.
4. Meals and entertainment expenses (only 50% of which are ever tax deductible) were $16,000 for 2014.
5. Depreciation expense was $200,000 and CCA was $216,000 for 2014. 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 Deferred Tax Asset or Liability account at December 31, 2014.
(b) Calculate income tax payable for 2014.
(c) Prepare the journal entries to record income taxes for 2014.
(d) Prepare the income tax expense section of the income statement for 2014, beginning with the line "Income before income tax."
(e) Indicate how deferred taxes should be presented on the December 31, 2014 balance sheet.
(f) How would your response to parts (a) to (e) change if Anthony reported under IFRS?