The following differences apply to the reconciliation of accounting  income and taxable income of Melfort Inc. for calendar 2017, its first year of operations. The enacted income tax rate is 30% for all years.
Pre-tax accounting income $450,000
Excess CCA over depreciation expense 240,000
Lawsuit accrual 35,000
Unearned rent revenue deferred on the books but correctly
included in taxable income 25,000
Dividend income from Canadian corporations 10,000

The company follows IFRS rules.                                                                                  
1.   Excess CCA will reverse equally over a four-year period, 2018-2021.
2.   It is estimated that the lawsuit accrual will be paid in 2021.
3.   Unearned rent revenue will be recognized as earned equally over a four year period, 2018-2021.
Instructions
a)   Calculate taxable income and income taxes payable for 2017. (6 marks)


Pre-tax accounting income                                450,000
Excess CCA                                                    (240,000)
Lawsuit accrual                                                35,000
Unearned revenue                                            25,000
Dividend income                                              (10,000)
Taxable income                                               260,000
X 30% Income taxes payable                            78,000


b)        Since this is the first year of operations, there is no beginning deferred tax asset or liability. Calculate the net deferred tax expense (benefit). (4 marks)


Deferred tax expense                72,000
Deferred tax benefit                 (18,000)
Net deferred tax expense          54,000

c)   Prepare the adjusting journal entries to record income tax expense, deferred taxes, and income taxes payable for 2017. (4 marks)

Current tax expense 78,000
Income taxes payable 78,000

Deferred tax expense. 54,000
Deferred tax liability54,000

d) Show the balance sheet presentation of the deferred tax asset (liability). (2 marks)


IFRS
Non-current deferred tax liability          54,000

e) Show the balance sheet presentation of the deferred tax asset (liability) assuming the company follows ASPE rules. (4 marks)

ASPE
Current deferred tax asset         1,875

Non-current deferred tax liability          55,875

f) What is the deferred tax expense (benefit) if the tax rate is expected to be 25% in 2021? (4 marks)

Total deferred tax expense = 48,375 (at 30%) and 4,687.50 (at 25%) = $53,062.50

For question 2 f) how did it calculate 48,375, and 4687.50?

Answer rating: 100% (QA)

a Calculate taxable income and income taxes payable for 2017 6 marks Pretax accounting income 450000 ... View the full answer