The accounting records of Steven Corp., a real estate developer, indicated income before taxes of $850,000 for its year ended December 31, 2011, and of $525,000 for the year ended December 31, 2012. The following data are also available.
1. Steven Corp. pays an annual life insurance premium of $11,000 covering the top management team. The company is the named beneficiary.
2. The carrying amount of the company’s property, plant, and equipment at January 1, 2011, was $1,256,000, and the UCC at that date was $998,000. Steven recorded depreciation expense of $175,000 and $180,000 in 2011 and 2012, respectively. CCA for tax purposes was $192,000 and $163,500 for 2011 and 2012, respectively. There were no asset additions or disposals over the two-year period.
3. Steven deducted $211,000 as a restructuring charge in determining income for 2010. At December 31, 2010, an accrued liability of $199,500 (reported in current liabilities) remained outstanding relative to the restructuring. This expense is deductible for tax purposes, but only as the actual costs are incurred and paid for. When the actual restructuring of operations took place in 2011 and 2012, the liability was reduced to $68,000 at the end of 2011 and $0 at the end of 2012.
4. In 2011, property held for development was sold and a profit of $52,000 was recognized in income. Because the sale was made with delayed payment terms, the profit is taxable only as Steven receives payments from the purchaser. A 10% down payment was received in 2011, with the remaining 90% expected in equal amounts over the following three years.
5. Non-taxable dividends of $3,250 in 2011 and of $3,500 in 2012 were received from taxable Canadian corporations.
6. In addition to the income before taxes identified above, Steven reported a before-tax gain on discontinued operations of $18,800 in 2011.
7. A 30% rate of tax has been in effect since 2009.
Steven Corp. follows the PE GAAP future income taxes method.
(a) Determine the balance of any future income tax asset or liability accounts at December 31, 2010, 2011, and 2012.
(b) Determine 2011 and 2012 taxable income and current income tax expense.
(c) Prepare the journal entries to record current and future income tax expense for 2011 and 2012.
(d) Identify how the future income tax asset or liability account(s) will be reported on the December 31, 2011 and 2012 balance sheets.
(e) Prepare partial income statements for the years ended December 31, 2011 and 2012, beginning with the line “Income from continuing operations before income tax.”
(f) How would your response to (d) change if Steven Corp. reported under IFRS?