Burnaby Corporation accounts for warranties using the assurance method of expensing estimated costs in the same time period as the associated sales. In 2022, warranty expenses were estimated to be $98,000. Later, when claims are made, the warranty liability is reduced. Only the actually 2022 claims of $47,000 paid are tax deductible.
At December 31, 2022, the company's first year of offering a warranty, the balance in the warranty liability is $51,000. This reversing difference is expected to will cause deductible amounts of $35,000 in 2023 and $16,000 in 2024.
Burnaby's accounting income for 2022 is $650,000 and the tax rate is 30% for all years. There are no deferred tax accounts at the beginning of 2022 and this is the only event to effect to cause a difference between accounting and taxable income that the company has.
Instructions
- Prepare the journal entries to record income taxes for 2022.
- Assume that the company reports accounting income of $700,000 in each of 2023 and 2024, and that there is no reversing difference other than the one identified above. In addition, assume now that Burnaby Corporation was informed on December 31, 2023, that the enacted rate for 2024 and subsequent years will be changing to 32%. Prepare the journal entries to record income taxes for 2023.
Problem 5
11 marks
The following information is available for Vancouver Corporation's pension plan for the 2023 fiscal year (in thousands of dollars):
Defined benefit obligation, 1/1/23, accounting basis, before plan amendment
Fair value of plan assets, 1/1/23
Current service cost
Discount rate
Actual return on plan assets
Contributions (funding)
Benefits paid to retirees
$2,300
1,950
390
10%
215
675
110
On December 31, 2023, Vancouver Corp.'s pension trustee provided an actuarial report that advised that to meet future demands, the balance in the defined benefit obligation needs to be $3,000.
Instructions
- Calculate pension expense for 2023 and prepare journal entries to record the expense and funding for the year. Show calculations or use a worksheet.
- Provide the Statement of Financial Position presentation for the net defined benefit liability/asset account at December 31, 2022. Be specific about the classification.
- What is an advantage of using Other Comprehensive Income when accounting for defined benefit pensions under IFS?
