Question

Eloisa Corporation applies IFRS. Information about Eloisa Corporation’s income before income tax of $633,000 for its year ended December 31, 2017 includes the following:

1. CCA reported on the 2017 tax return exceeded depreciation reported on the income statement by $100,000. This difference, plus the $150,000 accumulated taxable temporary difference at January 1, 2017, is expected to reverse in equal amounts over the four-year period from 2018 to 2021.
2. Dividends received from taxable Canadian corporations were $15,000.
3. Rent collected in advance and included in taxable income as at December 31, 2016 totalled $60,000 for a three year period. Of this amount, $40,000 was reported as unearned for book purposes at December 31, 2017. Eloisa reports unearned revenue as a current liability if it will be recognized in income within 12 months from the balance sheet date. Eloisa paid a $2,880 interest penalty for late income tax instalments. The interest penalty is not deductible for income tax purposes at any time.
4. Equipment was disposed of during the year for $90,000. The equipment had a cost of $105,000 and accumulated depreciation to the date of disposal of $37,000. The total proceeds on the sale of these assets reduced the CCA class; in other words, no gain or loss is reported for tax purposes.
5. Eloisa recognized a $75,000 loss on impairment of a long-term investment whose value was considered impaired. The Income Tax Act permits the loss to be deducted only when the investment is sold and the loss is actually realized. The investment was accounted for at amortized cost.
6. The tax rates are 30% for 2017 and 25% for 2018 and subsequent years. These rates have been enacted and known for the past two years.

Instructions
(a) Calculate the balance in the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2016.
(b) Calculate the balance in the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2017.
(c) Prepare the journal entries to record income taxes for 2017.
(d) Indicate how the Deferred Tax Asset or Deferred Tax Liability account(s) will be reported on the comparative statements of financial position for 2016 and 2017.
(e) Prepare the income tax expense section of the income statement for 2017, beginning with “Income before income tax.”
(f) Calculate the effective rate of tax. Provide a reconciliation and explanation of why this differs from the statutory rate of 30%. Begin the reconciliation with the statutory rate.
(g) How would your response to parts (a) to (f) change if Eloisa reported under ASPE?

Answer 1