Question

Melissa Corporation is domiciled in Germany and is listed on both the Frankfurt and New York Stock Exchanges. Melissa has chosen to prepare consolidated financial statements in accordance with U.S. GAAP for filing with the U.S. Securities and Exchange Commission but must also prepare consolidated financial statements in accordance with IFRS in accordance with European Union regulations.
On December 31, 2014, Melissa Corporation purchased a small office building for $1,380,000. For tax and financial reporting purposes, Melissa estimates that the building has a useful life of 40 years with an estimated residual value of $100,000. Melissa uses straight-line depreciation for financial reporting. Assume that, for tax purposes, Melissa is permitted to deduct 5% of an asset’s depreciable base in the first year. This is the only building that Melissa owns.
At the end of 2015, Melissa had the building appraised by a qualified real estate appraiser who estimated the fair value of the building was $1,172,500. Melissa intends to occupy the building it-self, and therefore, the building is classified as property, plant, and equipment under both U.S. GAAP and IFRS. After being revalued under IFRS, the Building account has a balance of $1,172,500 and the Accumulated depreciation account has a balance of zero. Assume Melissa will have sufficient income in the future to recover any deferred tax assets that might be recognized.



Required:
Answer the following questions for each of the following scenarios:
1. Melissa prepares its consolidated financial statements under U.S. GAAP.
a. Calculate taxable income in 2015.
b. Prepare the journal entry to record tax expense, deferred taxes, and taxes payable.
c. What is the effective tax rate?
2. Melissa prepares its consolidated financial statements in accordance with IFRS.
a. Calculate taxable income in 2015.
b. Prepare the journal entry to record tax expense, deferred taxes, and taxes payable.
c. What is the effective taxrate?


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  • CreatedSeptember 10, 2014
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