The following information was disclosed during the audit of Shawna Inc.:
Amount Due per Tax Year Return 2017 $105,000 2018 84,0001. On January 1, 2017, equipment was purchased for $400,000. For financial reporting purposes, the company uses straight-line depreciation over a five-year life, with no residual value. For tax purposes, the CCA rate is 25%. 2. In January 2018, $225,000 was collected in advance for the rental of a building for the next three years. The entire $225,000 is reported as taxable income in 2018, but $150,000 of the $225,000 is reported as unearned revenue on the December 31, 2018 statement of financial position. The $150,000 of unearned revenue will be earned equally in 2019 and 2020. 3. The tax rate is 30% in 2017 and all subsequent periods. 4. No temporary differences existed at the end of 2016. Shawna expects to report taxable income in each of the next five years. Its fiscal year ends December 31. Shawna Inc. follows IFRS.
Instructions (a) Calculate the amount of capital cost allowance and depreciation expense for 2017 and 2018, and the corresponding carrying amount and undepreciated capital cost of the depreciable assets at December 31, 2017 and 2018. (b) Determine the balance of the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2017, and indicate the account’s classification on the statement of financial position. (c) Prepare the journal entry(ies) to record income taxes for 2017. (d) Draft the bottom of the income statement for 2017, beginning with “Income before income tax.” (e) Determine the balance of the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2018, and indicate the account’s classifi cation on the December 31, 2018 statement of fi nancial position. (f) Prepare the journal entry(ies) to record income taxes for 2018. (g) Prepare the bottom of the income statement for 2018, beginning with “Income before income tax.” (h) Provide the comparative statement of fi nancial position presentation for the deferred tax accounts at December 31, 2017 and 2018. Be specifi c about the classifi cation. (i) Is it possible to have more than two accounts for deferred taxes reported on a statement of fi nancial position? Explain. (j) How would your response to part (h) change if Shawna Inc. reported under the ASPE future/deferred income taxes method?
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