The following information was disclosed during the audit of Shawna Inc.:
Year Amount Due per Tax Return
2014.........................$105,000
2015............................84,000
1. On January 1, 2014, equipment was purchased for $400,000. For financial reporting purposes, the company uses straight-line depreciation over a five-year life, with no residual value. For tax purposes, the CCA rate is 25%.
2. In January 2015, $225,000 was collected in advance for the rental of a building for the next three years. The entire $225,000 is reported as taxable income in 2015, but $150,000 of the $225,000 is reported as unearned revenue on the December 31, 2015 statement of financial position. The $150,000 of unearned revenue will be earned equally in 2016 and 2017.
3. The tax rate is 30% in 2014 and all subsequent periods.
4. No temporary differences existed at the end of 2013. Shawna expects to report taxable income in each of the next five years. Its fiscal year ends December 31. Shawna Inc. follows IFRS.
Instructions
(a) Calculate the amount of capital cost allowance and depreciation expense for 2014 and 2015, and the corresponding carrying amount and undepreciated capital cost of the depreciable assets at December 31, 2014, and 2015.
(b) Determine the balance of the deferred tax asset or liability account at December 31, 2014, and indicate the account's classification on the statement of financial position.
(c) Prepare the journal entry (ies) to record income taxes for 2014.
(d) Draft the bottom of the income statement for 2014, beginning with "Income before income tax."
(e) Determine the balance of the deferred tax asset or liability account at December 31, 2015, and indicate the account's classification on the December 31, 2015 statement of financial position.
(f) Prepare the journal entry(ies) to record income taxes for 2015.
(g) Prepare the bottom of the income statement for 2015, beginning with "Income before income tax."
(h) Provide the comparative statement of financial position presentation for the deferred tax accounts at December 31, 2014, and 2015. Be specific about the classification.
(i) Is it possible to have more than two accounts for deferred taxes reported on a statement of financial position? Explain.
(j) How would your response to part (h) change if Shawna Inc. reported under the ASPE future/deferred income taxes method?