Question

The following are two independent situations related to future taxable and deductible amounts that resulted from temporary differences at December 31, 2011. In both situations, the future taxable amounts relate to property, plant, and equipment depreciation, and the future deductible amounts relate to settlements of litigation that were previously accrued in the accounts.
1. Alia Corp. has developed the following schedule of future taxable and deductible amounts:
Alia reported a net future income tax liability of $500 at January 1, 2011.
2. Khoi Corp. has the following schedule of future taxable and deductible amounts:
Khoi Corp. reported a net future tax asset of $600 at January 1, 2011.
Both Alia Corp. and Khoi Corp. have taxable income of $4,000 in 2011 and expect to have taxable income in all future years. The tax rates enacted as of the beginning of 2011 are 30% for 2011 to 2014, and 35% for 2015 and subsequent years. All of the underlying temporary differences relate to noncurrent assets and liabilities. Both Khoi and Alia report under the PE GAAP future income taxes method.
Instructions
(a) Determine the future income tax assets or liabilities that will be reported on each company’s December 31, 2011 balance sheet.
(b) For each of these two situations, prepare journal entries to record income taxes for 2011. Show all calculations.
(c) Provide the balance sheet presentation of future tax accounts on each company’s December 31, 2011 balance sheet, including their correct classification.
(d) How would your response to (c) change if Khoi and Alia followed IFRS?


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  • CreatedAugust 23, 2015
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