Chen Corporation reported income before income tax for the year ended December $31,2023,$ of $$1,645,000.$ In preparing the $2023$ financial statements, the accountant discovered an error that was made in $2022.$ The error was that a piece of land with a cost of $$40,000$ had wrongly been recognized as an operating expense. The balance reported as retained earnings at December $31,2022,$ was $$5,678,000,$ and the net book value of property, plant, and equipment $($excluding land$)$ was $$1,352,000$ at the same date. During $2023,$ Chen acquired additional equipment with a cost of $$16,000$

In completing the corporate tax return for the $2023$ year, the company controller noted that the $2023$ depreciation expense was $$365,000,$ CCA claimed was $$300,000,$ and non$-$deductible income tax penalties and interest of $$2,500$ and golf club dues of $$4,500$ were incurred in the year. In addition, the accounting allowance for expected credit losses exceeded the tax reserve for uncollectible amounts by $$20,000,$ although they were equal at the beginning of the year. At the end of $2022,$ the company had temporary differences of $$135,000,$ due to lower depreciation expense than CCA claimed on the corporate tax return. The resulting future taxable amounts and the dates they were expected to reverse at December $31,2022,$ were:

$2023$  $$65,000$

$202440,000$

$202530,000$

$$135,000$

The tax rate is $30\%$ for all years. Chen applies IFRS.

Instructions

a$.$ Calculate the balance sheet Deferred Tax Account balance at December $31,2022.$

b$.$ Determine the effect of the prior$-$period error on the December $31,2022$ balance sheet and prepare the journal entry to correct the error. Assume that the $2022$ income tax return is refiled.

c$.$ Prepare the journal entries to record income taxes for the $2023$ year.

d$.$ Indicate how the income taxes will be reported on the financial statements for $2023$ by preparing the bottom portion of the income statement beginning with "Income before income tax." Also prepare the Retained Earnings portion of the Statement of Changes in Equity for the year ended December $31,2023,$ assuming no dividends were declared during the year.

 

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