Refer to the information in BE18.11 for Henry Limited. Assume that the company reports under ASPE and that the taxes payable method of accounting is used for income tax. 

Instructions

a. Prepare the journal entry(ies) to record income tax at December 31, 2020. 

b. Prepare the income statement for 2020, beginning with the line “Income before income tax.” 

c. Provide the balance sheet presentation for any resulting income tax accounts at December 31, 2020.

d. Prepare the disclosures that are necessary because the taxes payable method is being used. 

e. Now that Henry Limited has adopted the taxes payable method, how do you think the creditors would react to this accounting policy when they read Henry's financial statements? Explain. 

Data From BE18.11.

Henry Limited had investments in securities on its SFP for the first time at the end of its fiscal year ended December 31, 2020. Henry reports under IFRS and its investments in securities are to be accounted for at fair value through net income. During 2020, realized losses and gains on the trading of shares and bonds resulted in investment income, which is fully taxable in the year. Henry also accrued unrealized gains at December 31, 2020, which are not taxable until the investment securities are sold. The portfolio of trading securities had an original cost of $314,450 and a fair value on December 31, 2020, of $318,200. The entry recorded by Henry on December 31, 2020, was as follows: 

FV-NI Investments...............3,750    

         Investment Income or Loss.............3,750 

Income before income tax for Henry was $302,000 for the year ended December 31, 2020. There are no other permanent or reversing differences in arriving at the taxable income for Henry Limited for the fiscal year ended December 31, 2020. The enacted tax rate for 2020 and future years is 30%.