Sarah Corp. reported the following differences between balance sheet carrying amounts and tax values at December 31, 2010:
The differences between the carrying amounts and tax values were expected to reverse as follows:
Tax rates enacted at December 31, 2010, were 31% for 2010, 30% for 2011, 29% for 2012, and 28% for 2013 and later years.
During 2011, Sarah made four quarterly tax instalment payments of $8,000 each and reported income before taxes on its income statement of $109,400. Included in this amount were dividends from taxable Canadian corporations of $4,300 (non-taxable income) and $20,000 of expenses related to the executive team’s golf dues (non-tax-deductible expenses). There were no changes to the enacted tax rates during the year.
As expected, book depreciation in 2011 exceeded the capital cost allowance claimed for tax purposes by $17,500, and there were no additions or disposals of property, plant, and equipment during the year. A review of the 2011 activity in the warranty liability account in the ledger indicated the following:
Balance, Dec. 31, 2010 ............. $18,500
Payments on 2010 product warranties ....... (18,900)
Payments on 2011 product warranties ....... (5,600)
2011 warranty accrual ............ 28,300
Balance, Dec. 31, 2011 ........... $22,300
All warranties are valid for one year only. The accrued pension liability account reported the following activity:
Balance, Dec. 31, 2010 ......... $34,600
Payment to pension trustee ........ (70,000)
2011 pension expense .......... 59,000
Balance, Dec. 31, 2011 ......... $23,600
Pension expenses are deductible for tax purposes, but only as they are paid to the trustee, not as they are accrued for financial reporting purposes.
Sarah Corp. reports under IFRS.
(a) Calculate the future tax asset or liability account at December 31, 2010, and explain how it should be reported on the December 31, 2010 balance sheet.
(b) Calculate the future tax asset or liability account at December 31, 2011.
(c) Prepare all income tax entries for Sarah Corp. for 2011.
(d) Identify the balances of all income tax accounts at December 31, 2011, and show how they will be reported on the comparative GAAP balance sheets at December 31, 2011 and 2010, and on the income statement for the year ended December 31, 2011.
(e) How would your responses to (a) and (d) change if Sarah Corp. followed the PE GAAP future income taxes method?

  • CreatedAugust 23, 2015
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