Kieso Volume 2 Chapter 12 Problems example Sandy Corp. (SC) manufactures sporting goods. SC's fiscal year end is October 31st. For the first time, SC reports a loss in 2021 due to COVID-19. Management believes it is highly probable that sufficient taxable income will be generated in the next five to six years to entirely take benefit of this loss. The list of balance sheet accounts as at October 31, 2021 appears below, with the comparative figures as at October 31, 2020. All year-end adjustments have been made as at October 31, 2021, only the income tax expense remains to be recorded. Consider that current and future income taxes have been properly recorded for the preceding year ending October 31, 2020. SC has made income tax instalments of $10,000 for the 2021 fiscal year|| in addition of paying the balance of income tax payable as at October 31, 2020. 2021 DT $15,000 $595,000 $225,000 $172,000 $19,000 $59,200 $360,000 $2,025,000 2020 DT $62,500 $1,138,500 $216,000 $136,200 $59,200 $360,000 $2,025,000 Cash Investment certificates Accounts receivable Inventory Deferred development costs Future income tax asset Land PPE Accumulated depreciation PPE Line of credit Income taxes payable Accounts payable Provision for site restoration Net defined benefit liability Mortgage payable Share capital Retained earnings $473,000 $90,000 $10,000 $158,800 $80,000 $135,000 $1,118,400 $60,000 $1,365,000 $3,480,200 $378,000 $81,000 $39,000 $150,000 $120,000 $116,000 $1,238,400 $60,000 $1,815,000 $3,997,400 $3,480,200 $3,997,400 The undepreciated cost of capital of depreciable PPE was $1,707,000 as at October 31, 2020. For the first time in 2021, SC has capitalized development costs that are immediately deductible for tax purposes. The capitalized development costs were not amortized yet. Also, only disbursements related to restoration costs are deductible for tax purposes. Similarly, only the contribution to the pension fund is deductible for tax purposes. For simplicity, consider that all pension costs are recognized in net income. The income tax rate was 20% in 2020. It is 19 % in 2021. Other relevant information to determine the 2021 income tax expense is as follows: Loss before income taxes Maximum capital cost allowance (CCA) Depreciation expense for PPE Site restoration costs recognized in net income Cash disbursements for site restoration Pension costs recorded in net income Contribution to the pension fund Non-deductible entertainment expenses $450,000 115,000 95,000 12,000 52,000 80,000 61,000 10,000 Management wishes to claim the maximum amount of CCA in 2021 given the high probability that SC will generate sufficient taxable income in the near future. SC has reported taxable income for a total amount of $300,000 from 2018 to 2020. This amount was taxed at a rate of 20%. Required 1) Assume SC applies IFRS and prepare the journal entries to record the income tax expense for 2021. 2) Prepare a partial statement of comprehensive income for the year ended October 31, 2021 and a partial balance sheet as at October 31, 2021 that will present the accounts and amounts related to income taxes. 3) Prepare the footnote disclosure that will show the income tax rate reconciliation for 2021. Prepare this footnote in dollar amounts. 4) Assume that SC applies ASPE and prepare a partial income statement for 2021. Provide all computations and clearly state the assumptions Kieso Volume 2 Chapter 12 Problems example Sandy Corp. (SC) manufactures sporting goods. SC's fiscal year end is October 31st. For the first time, SC reports a loss in 2021 due to COVID-19. Management believes it is highly probable that sufficient taxable income will be generated in the next five to six years to entirely take benefit of this loss. The list of balance sheet accounts as at October 31, 2021 appears below, with the comparative figures as at October 31, 2020. All year-end adjustments have been made as at October 31, 2021, only the income tax expense remains to be recorded. Consider that current and future income taxes have been properly recorded for the preceding year ending October 31, 2020. SC has made income tax instalments of $10,000 for the 2021 fiscal year|| in addition of paying the balance of income tax payable as at October 31, 2020. 2021 DT $15,000 $595,000 $225,000 $172,000 $19,000 $59,200 $360,000 $2,025,000 2020 DT $62,500 $1,138,500 $216,000 $136,200 $59,200 $360,000 $2,025,000 Cash Investment certificates Accounts receivable Inventory Deferred development costs Future income tax asset Land PPE Accumulated depreciation PPE Line of credit Income taxes payable Accounts payable Provision for site restoration Net defined benefit liability Mortgage payable Share capital Retained earnings $473,000 $90,000 $10,000 $158,800 $80,000 $135,000 $1,118,400 $60,000 $1,365,000 $3,480,200 $378,000 $81,000 $39,000 $150,000 $120,000 $116,000 $1,238,400 $60,000 $1,815,000 $3,997,400 $3,480,200 $3,997,400 The undepreciated cost of capital of depreciable PPE was $1,707,000 as at October 31, 2020. For the first time in 2021, SC has capitalized development costs that are immediately deductible for tax purposes. The capitalized development costs were not amortized yet. Also, only disbursements related to restoration costs are deductible for tax purposes. Similarly, only the contribution to the pension fund is deductible for tax purposes. For simplicity, consider that all pension costs are recognized in net income. The income tax rate was 20% in 2020. It is 19 % in 2021. Other relevant information to determine the 2021 income tax expense is as follows: Loss before income taxes Maximum capital cost allowance (CCA) Depreciation expense for PPE Site restoration costs recognized in net income Cash disbursements for site restoration Pension costs recorded in net income Contribution to the pension fund Non-deductible entertainment expenses $450,000 115,000 95,000 12,000 52,000 80,000 61,000 10,000 Management wishes to claim the maximum amount of CCA in 2021 given the high probability that SC will generate sufficient taxable income in the near future. SC has reported taxable income for a total amount of $300,000 from 2018 to 2020. This amount was taxed at a rate of 20%. Required 1) Assume SC applies IFRS and prepare the journal entries to record the income tax expense for 2021. 2) Prepare a partial statement of comprehensive income for the year ended October 31, 2021 and a partial balance sheet as at October 31, 2021 that will present the accounts and amounts related to income taxes. 3) Prepare the footnote disclosure that will show the income tax rate reconciliation for 2021. Prepare this footnote in dollar amounts. 4) Assume that SC applies ASPE and prepare a partial income statement for 2021. Provide all computations and clearly state the assumptions