Question
Sarasota Ltd. began business on January 1, 2019. At December 31, 2019, it had a $53,430 balance in the Deferred Tax Liability account that pertains
Sarasota Ltd. began business on January 1, 2019. At December 31, 2019, it had a $53,430 balance in the Deferred Tax Liability account that pertains to property, plant, and equipment acquired on July 1, 2019 at a cost of $822,000. The property, plant, and equipment is being depreciated on a straight-line basis over six years for financial reporting purposes, and is a Class 8-20% asset for tax purposes. Sarasotas income before income tax for 2020 was $61,000. Sarasota Ltd. follows IFRS. The following items caused the only differences between accounting income before income tax and taxable income in 2020.
1. | In 2020, the company paid $52,200 for rent; of this amount, $17,400 was expensed in 2020. The other $34,800 will be expensed equally over the 2021 and 2022 accounting periods. The full $52,200 was deducted for tax purposes in 2020. | ||
2. | Sarasota Ltd. pays $8,600 a year for a membership in a local golf club for the companys president. | ||
3. | Sarasota Ltd. now offers a one-year warranty on all its merchandise sold. Warranty expenses for 2020 were $8,700. Cash payments in 2020 for warranty repairs were $4,350. | ||
4. | Meals and entertainment expenses (only 50% of which are ever tax deductible) were $11,700 for 2020. | ||
5. | The maximum allowable CCA was taken in 2020. There were no asset disposals for 2020. Assume the PPE is considered eligible equipment for purposes of Accelerated Investment Incentive (under the AII, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate). |
Income tax rates have not changed since the company began operations.
Calculate the balance in the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2020.
Balance in deferred tax Choose the answer from the menu in accordance to the question statement liabilityasset account | $Enter your answer in accordance to the question statement |
eTextbook and Media
List of Accounts
Calculate income tax payable for 2020.
Income Tax Payable | $Enter your answer in accordance to the question statement |
eTextbook and Media
List of Accounts
Prepare the journal entries to record income taxes for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date | Account Titles and Explanation | Debit | Credit |
December 31, 2020 | |||
(To record current tax expense) | |||
December 31, 2020 | |||
(To record deferred tax expense) |
eTextbook and Media
List of Accounts
Prepare the income tax expense section of the income statement for 2020, beginning with the line Income before income tax. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Sarasota Ltd. (Partial) Income Statement For the Month Ended December 31, 2020For the Year Ended December 31, 2020December 31, 2020 | |||||
Income Tax Expense - DeferredIncome Tax Expense - CurrentNet Income / (Loss)Deferred Tax AssetDeferred Tax LiabilityIncome Before Income Tax | $ | ||||
Net Income / (Loss)Deferred Tax LiabilityDeferred Tax AssetIncome Tax Expense - CurrentIncome Before Income TaxIncome Tax Expense - Deferred | $ | ||||
Net Income / (Loss)Deferred Tax LiabilityIncome Tax Expense - DeferredDeferred Tax AssetIncome Before Income TaxIncome Tax Expense - Current | |||||
Income Tax Expense - DeferredIncome Before Income TaxDeferred Tax AssetDeferred Tax LiabilityNet Income / (Loss)Income Tax Expense - Current | $ |
eTextbook and Media
List of Accounts
Indicate how deferred taxes should be presented on the December 31, 2020 SFP.
Sarasota Ltd. (Partial) Statement of Financial Position For the Year Ended December 31, 2020December 31, 2020For the Month Ended December 31, 2020 | |||
Shareholders' EquityCurrent LiabilitiesNon-Current AssetsCurrent AssetsFixed AssetsNon-Current Liabilities: | |||
$ |
eTextbook and Media
List of Accounts
Indicate how deferred taxes should be presented on the December 31, 2020 balance sheet if Sarasota reported under ASPE.
Sarasota Ltd. (Partial) Balance Sheet For the Month Ended December 31, 2020December 31, 2020For the Year Ended December 31, 2020 | |||
Shareholders' EquityFixed AssetsCurrent AssetsNon-Current AssetsCurrent LiabilitiesNon-Current Liabilities: | |||
$ | |||
Current AssetsNon-Current AssetsNon-Current LiabilitiesCurrent LiabilitiesShareholders' EquityFixed Assets: | |||
$ | |||
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