Question

P18.1  Anthony Ltd. began business on January 1, 2019. At December 31, 2019, it had a $58,500 balance in the Deferred Tax Liability account that pertains to property, plant, and equipment acquired on July 1, 2019 at a cost of $900,000. The property, plant, and equipment is being depreciated on a straight-line basis over six years for financial reporting purposes, and is a Class 8—20% asset for tax purposes. Anthony's income before income tax for 2020 was $60,000. Anthony Ltd. follows IFRS.

The following items caused the only differences between accounting income before income tax and taxable income in 2020.

1. In 2020, the company paid $56,250 for rent; of this amount, $18,750 was expensed in 2020. The other $37,500 will be expensed equally over the 2021 and 2022 accounting periods. The full $56,250 was deducted for tax purposes in 2020.
2. Anthony Ltd. pays $9,000 a year for a membership in a local golf club for the company's president.
3. Anthony Ltd. now offers a one-year warranty on all its merchandise sold. Warranty expenses for 2020 were $9,000. Cash payments in 2020 for warranty repairs were $4,500.
4. Meals and entertainment expenses (only 50% of which are ever tax deductible) were $12,000 for 2020.
5. The maximum allowable CCA was taken in 2020. There were no asset disposals for 2020. Assume the PPE is considered “eligible equipment” for purposes of the Accelerated Investment Incentive (under the AII, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate).

Income tax rates have not changed since the company began operations.

Instructions

a. Calculate the balance in the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2020.

b. Calculate income tax payable for 2020.

c. Prepare the journal entries to record income taxes for 2020.

d. Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income tax.”

e. Indicate how deferred taxes should be presented on the December 31, 2020 SFP.

f. How would your response to parts (a) to (e) change if Anthony reported under ASPE?

Answer 1

(a)		A	B
	Year	Base	CCA Rate	CCA	UCC	Depreciation	CA [ CCA + UCC- Depreciation]	Temperory Difference	Reversing Difference
	2019	900000	20%	180000	720000	75000	825000	-105000	-105000
	2020	720000	20%	144000	576000	150000	570000**	6000	111000
	2021	576000	20%	115200	460800	150000	426000	34800	28800
	2022	460800	20%	92160	368640	150000	310800	57840	23040
	2023	368640	20%	73728	294912	150000	218640	76272	18432
	Staement of financial position Dec 31 , 2020
		Tax Base	Carrying amount	Deductible (Taxable ) Temporary Differences	Tax Rate	Deferref Taz Asset (Liability)	ASPE Current of long term
	Property , plant & Equipment	576000	570000**	6000	30%	1800	LT
	Prepaid Rent (2020 expense)	0	18750	-18750	30%	(5625)	C
	Prepaid Rent (2021 expense)	0	18750	-18750	30%	(5625)	LT
	Warranty liability	0	-4500	4500	30%	1350	C
	Deferred tax liability, December 31, 2020			-6750
	Deferred tax liability before adjustment			-4500
	Increase in deferred tax liability and deferred tax expense for 2020		-2250
(b)	Accounting Income		60000
	Permanent differences :
	50% of meals expense (12000*50%)	6000
	Golf club fees	9000	15000	75000
	Reversing Difference
	Depreciation	150000
	Capital cost allowance	-144000	6000
	Rent paid	-56250
	Rent Expense	18750	-37500
	Warranty expense	9000
	Warranty payments	-4500	4500	-27000
	Taxable Income			48000
	Current incoe tax - 30%			14400
					ekkarill92 Next > < Previous Related Solutions Alakazam Corp. began business on January 1, 2016. At December 31, 2016, it had a $4,500... Alakazam Corp. began business on January 1, 2016. At December 31, 2016, it had a $4,500 balance in the Deferred Tax Liability account that pertains to property, plant, and equipment acquired during 2016 at a cost of $900,000. The property, plant, and equipment is being depreciated on a straight-line basis over six years for financial reporting purposes, and is a Class 8—20% asset for tax purposes. Alakazam’s income before income tax for 2017 was $60,000. Alakazam Corp. follows IFRS and... Lily Company began business on January 1, 2017. The company’s year-end is December 31. The following... Lily Company began business on January 1, 2017. The company’s year-end is December 31. The following events occurred during the first year of operations: Apr. 1 Paid cash in the amount of $24,000 for a one-year rental contract on a building. July 1 Received $60,000 in cash from customers for services to be provided evenly during the next twelve months. Oct. 1 Acquired a building by borrowing $300,000 at 6% interest, principal and interest payable at maturity in ten years.... On December 31, 2019, Mills Manufacturing Ltd. had a $197,000 balance in its Accounts Receivable and... On December 31, 2019, Mills Manufacturing Ltd. had a $197,000 balance in its Accounts Receivable and a $10,400 balance in its Allowance for Doubtful Accounts. During 2020, the company made total sales of $858,000, of which $225,000 were cash sales. By the end of the year, Mills had received payments of $552,000 from its customers on account. The company also wrote off as uncollectible $13,300 of its receivables when it learned that these customers had declared bankruptcy. The company was... Prepare a balance sheet as of December 31, 2019. BUSINESS SOLUTIONS Balance Sheet December 31, 2019... Prepare a balance sheet as of December 31, 2019. BUSINESS SOLUTIONS Balance Sheet December 31, 2019 Assets Cash Accounts receivable Prepaid insurance Prepaid insurance Prepaid rent Office equipment Accumulated depreciation—Office equipment 0 Accumulated depreciation—Computer equipment Computer equipment 0 Total Assets 0 Liabilities Accounts payable Wages payable Unearned computer services revenue Total Liabilities 0 Equity Retained earnings Common stock Total equity $0 Total Liabilities and Equity $0 After the success of the company’s first two months, Santana Rey continues to operate... Boutique shoppe Ltd. began operations two years ago. Its adjusted account balances on December 31, 2019,... Boutique shoppe Ltd. began operations two years ago. Its adjusted account balances on December 31, 2019, are listed below: Account Debit Credit Cash $11,300 Merchandise inventory 46,000 Store supplies 18,900 Notes receivable 8,500 Store equipment 167,600 Accumulated depreciation, store equipment 49,000 Mortgage payable 54,000 Accounts payable 30,500 Sales 450,000 Sales discounts 14,000 Sales returns and allowances 8,000 Cost of goods sold 126,400 Sales salaries expense 105,200 Rent expense, selling space 25,000 Office supplies expenses    1,800 Rent expense, office space... Cooper Physics Consulting Inc. began business on January 1, 2019. Selected transactions from 2019 are described... Cooper Physics Consulting Inc. began business on January 1, 2019. Selected transactions from 2019 are described below: January 2 Issued 10,000 shares of common stock in exchange for equipment worth $300,000. January 15 Issued 4,000 shares of preferred stock in exchange for cash of $40,000. February 14 The Board of Directors declares a dividend on the common shares for $0.25 per share. March 31 The Board of Directors declared the regular quarterly dividend on the preferred shares. The preferred shares... INCOME STATEMENT (IN MILL$): January 1, 2019 – December 31, 2019 Revenue = 400; Gross Profit... INCOME STATEMENT (IN MILL$): January 1, 2019 – December 31, 2019 Revenue = 400; Gross Profit Margin = 30%; Operating Expenses (before depreciation) = 20; Depreciation = 20; Interest = 10; Average Tax Rate =40%; Preferred Dividend = 5; Common Dividend= 7; # of shares outstanding=10 million; Per Share Price of Common Stock = $50.00 BALANCE SHEET (IN MILL$): December 31, 2019 Cash = 5; A/R = 20; Inventory = 55; Net Fixed Asset = 120; Accounts Payable= 10; Accrued... Stepfall Ltd had the following ratios at 31 December 2017 and 31 December 2016: 2017 2016... Stepfall Ltd had the following ratios at 31 December 2017 and 31 December 2016: 2017 2016 Gross profit margin 27% 31% Return on capital employed 15% 22% Current ratio 1.1:1 0.7:1 Acid test ratio 0.8:1 0.6:1 Trade receivable days 33 days 48 days Inventory holding days 42 days 57 days Which ONE of the following statements is TRUE? a) The company’s profitability, working capital management and liquidity have improved. b) The company’s profitability and working capital management have deteriorated but... Desrosiers Ltd. had the following long-term receivable account balances at December 31, 2019: Notes receivable    $1,800,000... Desrosiers Ltd. had the following long-term receivable account balances at December 31, 2019: Notes receivable    $1,800,000 Notes receivable—Employees 400,000 Transactions during 2020 and other information relating to Desrosiers' long-term receivables were as follows: 1. The $1.8-million note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Desrosiers's electronics division to New York Company. Principal payments of $600,000 plus appropriate interest are due on May 1, 2020, 2021,... Fool’s Paradise Ltd had cash and cash equivalents at 1 January 2019 of $400,000. The transactions... Fool’s Paradise Ltd had cash and cash equivalents at 1 January 2019 of $400,000. The transactions of Fool’s Paradise Ltd for the year to 31 December 2019 are as follows:  Borrowed $850,000 with a 9-month loan payable  Received $6,340,000 cash for customer accounts  Sold for $360,000 cash a plant asset with a carrying amount of $180,000  Issued ordinary shares for $480,000 cash  Purchased a plant asset for $650,000; $237,500 in cash and $412,500 in loan... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions Discuss 2 recent issues faced by small business owners. How are you affected either as an... At what pH is the cell potential of the following half-cell +1.20 V? Cr2O7 2- (aq)... It is said that economic crises (such as the economic recession) can be expected through the... d-i especially! Canada and the US trade apples. The Canadian domestic demand (Qd C) and supplycurves... 1 .Identify two actions judges can take with regard to contract law that create contracts where... The National Collegiate Athletic Association (NCAA) restricts the amount that colleges and universities may pay their... 1 a) Water can decompose to hydrogen and water vapor at high temperatures. You're pondering a... ADVERTISEMENT About @ 2020 WizEdu