The following information was disclosed during the audit of Shawna Inc.
Amount Due per
Year Tax Return
2011 ......... $140,000
2012 ......... 112,000
1. On January 1, 2011, equipment was purchased for $400,000. For financial reporting purposes, the company uses straight-line depreciation over a five-year life, with no residual value. For tax purposes, the CCA rate is 25%.
2. In January 2012, $225,000 was collected in advance for the rental of a building for the next three years. The entire $225,000 is reported as taxable income in 2012, but $150,000 of the $225,000 is reported as unearned revenue on the December 31, 2012 balance sheet. The $150,000 of unearned revenue will be earned equally in 2013 and 2014.
3. The tax rate is 40% in 2011 and all subsequent periods.
4. No temporary differences existed at the end of 2010. Shawna expects to report taxable income in each of the next five years. Its fiscal year ends December 31.
Shawna Inc. follows IFRS.
(a) Calculate the amount of capital cost allowance and depreciation expense for 2011 and 2012, and the corresponding carrying amount and undepreciated capital cost of the depreciable assets at December 31, 2011 and 2012.
(b) Determine the balance of the future income tax asset or liability account at December 31, 2011, and indicate the account’s classification on the balance sheet.
(c) Prepare the journal entry(ies) to record income taxes for 2011.
(d) Draft the bottom of the income statement for 2011, beginning with “Income before income taxes.”
(e) Determine the balance of the future income tax asset or liability account at December 31, 2012, and indicate the account’s classification on the December 31, 2012 balance sheet.
(f) Prepare the journal entry(ies) to record income taxes for 2012.
(g) Prepare the bottom of the income statement for 2012, beginning with “Income before income taxes.”
(h) Provide the comparative balance sheet presentation for the future tax balance sheet accounts at December 31, 2011 and 2012. Be specific about the classification.
(i) Is it possible to have more than two accounts for future taxes reported on a balance sheet? Explain.
(j) How would your response to (h) change if Shawna Inc. reported under the PE GAAP future income taxes method?