Question

ABC Ltd. had accounting income of $156,000 in 2018. Within this accounting incomefigure is the CEO’s life insurance expense of $5,000, which is not deductible for tax purposes.In addition, the undepreciated capital cost (UCC) for tax purposes is $14,000 lower than the net carrying amount of the property, plant, and equipment, although the amounts were equal at the beginning of the year.

Required:
1) Prepare ABC's journal entry to record 2018 taxes, assuming IFRS was used and a tax rate of 25%.

Answer 1

1. Journal Entry to Record Taxes?

Ans: Income Tax Expense in Books = $156,000 *25% = $39,000

          Income Tax Payable = ($156,000 + $5,000 (Disallowed as Expense) - $14,000*)x25%

                                        = $147,000 x 25% = $36,750

*Depreciation has been provided in short in books

Journal Entry to Record Taxes:

Income Tax Expense a/c                         dr       $39,000

          Income Tax Payable a/c                                             $36,750

          Deferred Tax Liability a/c                                            $2,250