Sunland AG, which began operations at the beginning of 2020, produces various products on a contract basis.
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Sunland AG, which began operations at the beginning of 2020, produces various products on a contract basis. Each contract generates income of €78,000. Some of Sunland’s contracts provide for the customer to pay on an installment basis. Under these contracts, Sunland collects one-fifth of the contract revenue in each of the following 4 years. For financial reporting purposes, the company recognizes income on an accrual basis; for tax purposes, Sunland recognizes income in the year cash is collected (installment basis).
Presented below is information related to Sunland’s operations for 2022.
1. | In 2022, the company completed seven contracts that allow for the customer to pay on an installment basis. Sunlandrecognized the related income of €546,000 for financial reporting purposes. It reported only €109,200 of income on installment sales on the 2022 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of €109,200 in each of the next 4 years. | ||
2. | Non-taxable government bond interest revenue was €25,500. | ||
3. | Non-deductible fines and penalties of €24,800 were paid. | ||
4. | Pretax financial income amounts to €510,000. | ||
5. | Tax rates (enacted before the end of 2022) are 50% for 2022 and 40% for 2023 and later. | ||
6. | The accounting period is the calendar year. | ||
7. | The company is expected to have taxable income in all future years. | ||
8. | The company had a deferred tax liability balance of €40,000 related to prior year installment sales at the end of 2021. None of this temporary difference reversed in 2022. |
Prepare the journal entry to record income taxes for 2022.
Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
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