Question
(Show steps and calculations please, It is using IFRS!) Agatha Agate Inc. began business on January 1, 2013. At December 31, 2013, it had a
(Show steps and calculations please, It is using IFRS!)
Agatha Agate Inc. began business on January 1, 2013. At December 31, 2013, it had a $6,000 balance in the deferred tax liability account related to property, plant and equipment. The equipment, purchased in 2013, cost $1,200,000. Agatha is depreciating the equipment on a straight-line basis over six years for financial reporting purposes. The equipment is a Class 8 -20% asset for tax purposes. In 2013 Agatha reported depreciation expense of $100,000 and calculated CCA as $120,000. [Note: Agatha took 50% in the year of acquisition. Both depreciation and CCA will be calculated at the full rates in 2014]. Agatha's before tax income in 2014 was $80,000. Agatha follows IFRS. Information about income includes the following: a. Total rent paid in 2014 was $75,000 of which $25,000 was expensed in 2014. The remaining $50,000 represents prepaid rent, which will be expensed equally in 2015 and 2016. The full $75,000 was deducted for tax purposes in 2014. b. Agatha Agate Inc. pays $12,000 per year for a membership in a local golf club for the company's president. c. The company now offers a one-year warranty on all merchandise sold. Warranty expenses for 2014 were $12,000. Cash payments for warranty expense were $6,000 in 2014. d. Meals and entertainment expenses (only 50% of which are ever deductible for tax purposes) were $16,000 in 2014. e. The current tax rate is 30% and the rate has not changed since Agatha began business. Required:
i. Calculate the balance in the Deferred Tax Asset or Liability account at December 31, 2014
ii. Calculate income tax payable for 2014 iii. Prepare the journal entries to record income taxes for 2014
iv. Prepare the income tax expense section of the income statement for 2014, beginning with Income before income tax
v. Indicate how deferred taxes would be presented on the December 31, 2014 Statement of Financial Position.
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