Exhibit 12.23 presents information from the income tax note to the financial statements for E-Drive, a European computer manufacturer, for the years ending December 31, 2013, 2012, and 2011. E-Drive applies IFRS.
a. Present the journal entry to recognize E-Drive€™s income tax expense and income taxes payable for the year ended December 31, 2012. Use a single deferred tax account instead of separate accounts for deferred tax assets and deferred tax liabilities.
b. Repeat part a for the year ended December 31, 2013.

c. Why do the amounts for deferred taxes in the entries in parts a and b not equal the change in deferred tax assets and deferred tax liabilities in Exhibit 12.23 for each year?
d. Why do local taxes appear as an addition in the reconciliation between the statutory tax rate and the effective tax rate?
e. Why does E-Drive show both deferred tax assets and deferred tax liabilities for retirement benefits?
f. What does the reporting of a deferred tax asset for bad debts and warranties suggest about when E-Drive recognizes expenses for these items for financial reporting and for tax reporting?
g. E-Drive leases equipment to its customers, which gives rise to a deferred tax liability. Does E-Drive likely account for these leases as operating leases or as capital leases for financial reporting? Which method of accounting for these same leases does E-Drive likely use for tax reporting?
h. What does the reporting of a deferred tax liability for development costs suggest about when E-Drive recognizes an expense for this item for financial reporting and for taxreporting?

Transcribed Image Text:

E-Drive's Income Tax Disclosures (amounts in millions of euros) EXHIBIT 12.23 2013 2012 Income Before Income Taxes. Income Tax Expense: 13,317 12,226 1,724 3,901 2,047 2,185 4,232 DeferredRWWA. Total Income Tax Expense. ..._ . . . . Income Taxes at the Statutory Tax Rate of 35% . . . Local Taxes (Net of Federal Tax Benefit).. Foreign Tax Rates 35% 35% Effective Tax Rate..WW... 29% 35% October 31: COMPONENTS OF DEFERRED TAXES Deferred Tax Assets: 2013 2012 2011 3,002 1,355 724 3,128 3,022 3,039 1,728 937 3,471 3,122 3,908 1,794 1,050 4,855 Capitalized Development Costs Total Deferred Tax Assets Deferred Tax Liabilities: Retirement Benefits ....*n Deferred Lease Income... . . 10,846 11,635 14,126 2,906 1,385 7,267 E 7,057 622 381 1,324 9,384 ...O 348 1,502 10,081 Other ....*. 1,340