Sarah Corp. reported the following differences between statement of financial position carrying amounts and tax bases at
Question:
Sarah Corp. reported the following differences between statement of financial position carrying amounts and tax bases at December 31, 2016:
The differences between the carrying amounts and tax bases were expected to reverse as follows:
Tax rates enacted at December 31, 2016 were 31% for 2016, 30% for 2017, 29% for 2018, and 28% for 2019 and later years.
During 2017, Sarah Corp. made four quarterly tax instalment payments of $9,500 each and reported income before income tax on its income statement of $119,650. Included in this amount were dividends from taxable Canadian corporations of $5,800 (non-taxable income) and $25,000 of expenses related to the executive team's golf dues (non-tax- deductible expenses). There were no changes to the enacted tax rates during the year.
As expected, book depreciation in 2017 exceeded the capital cost allowance claimed for tax purposes by $17,500, and there were no additions or disposals of property, plant, and equipment during the year. A review of the 2017 activity in the Warranty Liability account in the ledger indicated the following:
All warranties are valid for one year only. The Pension Liability account reported the following activity:
Pension expenses are deductible for tax purposes, but only as they are paid to the trustee, not as they are accrued for financial reporting purposes.
Sarah Corp. reports under IFRS.
Instructions
(a) Calculate the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2016, and explain how it should be reported on the December 31, 2016 statement of financial position.
(b) Calculate the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2017.
(c) Prepare all income tax entries for Sarah Corp. for 2017.
(d) Identify the balances of all income tax accounts at December 31, 2017, and show how they will be reported on the comparative statements of financial position at December 31, 2017 and 2016, and on the income statement for the year ended December 31, 2017.
(e) How would your responses to parts (a) and (d) change if Sarah Corp. followed the ASPE future/deferred income taxes method?
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1119048541
11th Canadian edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy