Question 4

The difference between the tax base of an asset or liability and its reported amount on theon the SFPis called a

future income tax expense.

current difference.

temporary difference.

permanent difference.

Question 5

Alabama Corp.'s taxable income differed from its accounting income for 2020. An item that would create permanent difference in accounting and taxable incomes for the corporation would be

a balance in the Unearned Rent account at year end.

making instalment sales during the year.

using CCA for tax purposes and straight-line depreciation for book purposes.

a payment of the golf club dues for the president's membership.

Question 6

Baxter Ltd. has made a total of $46,500 in instalments for corporate income tax for calendar 2020, all of which have been debited to Current Tax Expense. At year end, Dec 31, 2020, the accountant has calculated that the corporation's actual tax liability is only $43,000. What is the correct adjusting entry to reflect this fact?

Dr. Current Tax Expense $43,000, Cr. Income Taxes Payable $43,000

Dr. Current Tax Expense $3,500, Cr. Income Taxes Payable $3,500

Dr. Income Taxes Payable, $3,500, Cr. Current Tax Expense $3,500

Dr. Income Taxes Receivable $3,500, Cr. Current Tax Expense $3,500

Question 36

Bridgeport Corporation purchased equipment very late in 2020. Based on generous capital cost allowance rates provided in the Income Tax Act, Bridgeport Corporation claimed CCA on its 2020 tax return but did not record any depreciation because the equipment was being tested. This temporary difference will reverse and cause taxable amounts of $26,200 in 2021, $38,600 in 2022, and $45,000 in 2023. Bridgeport's accounting income for 2020 is $239,600 and the tax rate is 30% for all years. There are no deferred tax accounts at the beginning of 2020.

(a)

Calculate the deferred tax balance at December 31, 2020.

Deferred taxselect an option

liability

asset

$enter a dollar amount

Question 37

The accounting for the items in the numbered list that follows is commonly different for financial reporting purposes than it is for tax purposes.

(a)

Match each item in the following list to the number that best describes it:

i.A reversing difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred tax assetii.A reversing difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred tax liability

iii.A permanent difference

1.For financial reporting purposes, the straight-line depreciation method is used for plant assets that have a useful life of 10 years. For tax purposes, the CCA declining-balance method is used with a rate of 20%. (ignore the half-year rule.)

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

2.A landlord collects rents in advance. Rents are taxable in the period when they are received.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

3.Non-deductible expenses are incurred in obtaining income that is exempt from taxes.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

4.Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

5.Instalment sales are accounted for by the accrual method for financial reporting purposes and the cash basis for tax purposes.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

6.For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes but the assets' lives are shorter for tax purposes.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

7.Pension expense is reported on the income statement before it is funded. Pension costs are deductible only when they are funded.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

8.Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.)

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

9.The company reports dividends received from taxable Canadian corporations as investment income on its income statement, even though the dividends are non-taxable.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

10.Estimated losses on pending lawsuits and claims are accrued for financial reporting purposes. These losses are tax deductible in the period(s) when the related liabilities are settled.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

11.Security investments accounted for using the FV-NI model are adjusted at the end of the year to their fair value. This is the first year that the company has such investments and the fair value is lower than the cost.

A Permanent Difference

Deferred Tax Asset

Deferred Tax Liability

12.An impairment loss is recorded for goodwill in the current accounting period.