On December 31, 2010, Quirk Inc. has taxable temporary differences of $2,200,000 and a future income tax liability of $924,000. These temporary differences are due to Quirk having claimed CCA in excess of book depreciation in prior years. Quirk’s year-end is December 31. At the end of December 2011, Quirk’s substantially enacted tax rate for
2011 and future years was changed to 44%.
For the year ended December 31, 2011, Quirk’s accounting loss before tax was ($494,000). The following data are also available.
1. Pension expense was $87,000 while pension plan contributions were $111,000 for the year (only actual pension contributions are deductible for tax).
2. Business meals and entertainment were $38,000 (one-half deductible for tax purposes).
3. For the three years ending December 31, 2010, Quirk had cumulative, total taxable income of $123,000 and total tax expense/taxes payable of $51,660.
4. During 2011, the company booked estimated warranty costs of $31,000 and these costs are not likely to be incurred until 2015.
5. In 2011 the company incurred $150,000 of development costs (only 50% of which are deductible for tax purposes).
6. Company management has determined that only one-half of any loss carryforward at the end of 2011 is more likely than not to be realized.
7. In 2011, the amount claimed for depreciation was equal to the amount claimed for CCA.
Instructions
Prepare the journal entries to record taxes for the year ended December 31, 2011, and the tax reconciliation note.