intermediate Financial Reporting II
Q. No. 3 In 2020, the first year of its existence, Spider Lid.'s accountant, in preparing both the income statement and the tax return, developed the following list of items creating differences between accounting and taxable income: 1. The company sells its merchandise on an installment contract basis. In 2020, Spider elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2020. These procedures created a $240,000 difference between book and taxable incomes for 2020. Future collections of installment receivables are expected to result in taxable amounts of $120,000 in each of the next two years. 2. The company depreciates all of its property, plant and equipment using CCA for tax purposes and straight-line for accounting purposes. This resulted in $42,000 excess CCA over accounting depreciation. This temporary difference will reverse equally over the three year period from 2021-2023. 3. On July 1, 2020, Spider leased part of its building to Swift Books Lid. on a two-year operating lease. The monthly rent is $30,000, and Swift paid the first year's rent in advance (July 1, 2020 to June 30, 2021). Spider reported the entire amount on its tax return. This resulted in a $180,000 difference between book and taxable incomes. 4 Spider sold $150,000 of bonds issued by the Government of Canada at a gain of $18,000, which was included as other income in its income statement. A taxable capital gain of $9,000 was reported for tax purposes. 5 . In 2020, Spider insured the lives of its chief executives. The premiums paid were $12,000 and this amount was shown as an expense on the income statement. However, this amount was not deductible for tax purposes. Spider is a publicly accountable enterprise adhering to IFRS. Their 2020 income statement showed "Income before income taxes" of $900,000. The currently enacted income tax rate (and for the foreseeable future) is 40%. Except for those items mentioned above, there are no other differences between book and taxable incomes. Instructions a. Calculate the income tax payable for 2020. b. Prepare a schedule of future tax able/deductible amounts at the end of 2020. . Prepare a schedule of the deferred tax asset and deferred tax liability at the end of 2020. d. Calculate the net deferred tax expense (benefit) for 2020. e. Prepare the journal entry (entries) recording income tax expense, income tax payable, and deferred income taxes for 2020. f. How would the income tax expense and any deferred taxes be disclosed on the financial statements? Q. No. 4. On January 1, 2020, Hulk Lid. reported the following balances relating to their defined benefit pension plan: Defined benefit obligation... $1, 600,000 Fair value of plan assets... 1,600,000 Other data related to the pension plan for calendar 2020 are: Current service cost............ 70,000 Contributions to the plan ... 102,000 Benefits paid ......""; 100,000 Actual return on plan assets. 96,000 Interest (discount) rate .......... 9% Instructions a. Calculate the defined benefit obligation at December 31, 2020. b. Calculate the fair value of plan assets at December 31, 2020. C. Calculate pension expense for 2020. d. Prepare the journal entries to record the pension expense and the contributions for 2020
