Henry Limited had investments in securities on its SFP for the first time at the end of its fiscal year ended December 31, 2023. Henry reports under IFRS and its investments in securities are to be accounted for at fair value through net income. During 2023, realized losses and gains on the trading of shares and bonds resulted in investment income, which is fully taxable in the year. Henry also accrued unrealized gains at December 31, 2023, which are not taxable until the investment securities are sold. The portfolio of trading securities had an original cost of $314,450 and a fair value on December 31, 2023, of $318,200. The entry recorded by Henry on December 31, 2023, was as follows:

FV-NI Investments $3,750

Investment Income or Loss $3,750

Following the year ended December 31, 2023, Henry continued to actively trade its securities investments until the end of its 2024 fiscal year, when it was forced to sell several of them at a loss, because it needed cash for operations. By December 31, 2024, the portfolio of investments contained a single investment in shares, which was purchased in November 2024. Henry had paid $42,000 for these remaining shares. At December 31, 2024, the shares market value was $40,000. Income before income tax for Henry was $120,000 for the year ended December 31, 2024. There are no other permanent or reversing/timing differences in arriving at the taxable income for Henry for the fiscal year ended December 31, 2024. The enacted tax rate for 2024 and future years is 30%.

Instructions

a. Prepare the necessary journal entry for Henry to accrue the unrealized loss on its securities investments.

b. Explain the tax treatment that should be given to the unrealized accrued loss that Henry reported on its income statement.

c. Calculate the deferred tax balance at December 31, 2024.

d. Calculate the current tax expense for the year ended December 31, 2024.

e. Prepare the journal entries to record income taxes for 2024. Assume that there have been no entries to the ending balances of deferred taxes reported at December 31, 2023.

f. Prepare the income statement for 2024, beginning with the line Income before income tax.

g. Provide the presentation for the SFP for any resulting deferred tax accounts at December 31, 2024. Be clear on the classification you have chosen and explain your choice.

h. Prepare the journal entries in part (e) under the assumption that, late in 2024, the income tax rate changed to 25% for 2025 and subsequent years.