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Nicaragua Ltd reported pretax accounting profit of $76 million for 2022. The following information relates to the differences between the pretax accounting profit and taxable profit: (a) In 2022, Nicaragua accrued an expense and related liability for the estimated staff bonus of $7 million relating to the company's new compensation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million in 2023 and $3 million in 2024) (b) Nicaragua was assessed a penalty of $2 million by the Environmental Protection Agency for violation of law in 2022. This non-deductible fine is to be paid 1/2 in 2022 and 1/2 in 2023. (c) Income from installment sales of apartments included in pretax accounting profit in 2022 exceeded that reported for tax purposes by $3 million. The installment receivable account at the year-end had a balance of $4 million (representing portions of 2021 and 2022 installment sales), expected to be collected equally in 2023 and 2024. (d) Bad debt expense is reported using the allowance method, $3 million in 2022. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method), $2 million in 2022. At December 31, 2022, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2021. $2 million accounts proved uncollectible in 2023. (e) Nicaragua rents its operating facilities but owns one asset acquired in 2021 at a cost of $80 million. The followings show the depreciation expense recognized in the Income Statement of Nicaragua using the straight-line method assuming a four-year useful life and the depreciation allowances in the Tax Return in respect of the asset. Income Statement Tax Return $m $m 2021 20 26 2022 20 35 2023 20 12 2024 20 7 Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2022 were $0.6 million and $1.4 million, respectively. The tax rate is 20% each year. Requirement 1 Students are required to prepare a schedule that - Reconciles the differences between pretax accounting profit and taxable profit in 2022. - Determines the future taxable amounts and future deductible amounts. - Determines the tax payable, deferred tax liability and deferred tax asset at the end of 2022 based on the information given in the question in the space below: Requirement 2 Students are required to prepare the journal entries related to profits tax and deferred tax for 2022 below: 11. Determine the total "future taxable amount" at 2022 year end: 12. What is the total future deductible amount" at 2022 year end: 13. What is the taxable income for 2022? 14. Determine the income tax payable for 2022? 15. What is the balance of the deferred tax liability at 2022 year end? 16. Determine the amount should be credited to the deferred tax liability at 2022 year end. 17. Calculate the balance of the deferred tax asset at 2022 year end? 18. What is the amount should be debited to the deferred tax asset at 2022 year end? 19. What is the income tax expense to be reported in 2022's income statement? 20. What is the net income in 2022? Nicaragua Ltd reported pretax accounting profit of $76 million for 2022. The following information relates to the differences between the pretax accounting profit and taxable profit: (a) In 2022, Nicaragua accrued an expense and related liability for the estimated staff bonus of $7 million relating to the company's new compensation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million in 2023 and $3 million in 2024) (b) Nicaragua was assessed a penalty of $2 million by the Environmental Protection Agency for violation of law in 2022. This non-deductible fine is to be paid 1/2 in 2022 and 1/2 in 2023. (c) Income from installment sales of apartments included in pretax accounting profit in 2022 exceeded that reported for tax purposes by $3 million. The installment receivable account at the year-end had a balance of $4 million (representing portions of 2021 and 2022 installment sales), expected to be collected equally in 2023 and 2024. (d) Bad debt expense is reported using the allowance method, $3 million in 2022. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method), $2 million in 2022. At December 31, 2022, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2021. $2 million accounts proved uncollectible in 2023. (e) Nicaragua rents its operating facilities but owns one asset acquired in 2021 at a cost of $80 million. The followings show the depreciation expense recognized in the Income Statement of Nicaragua using the straight-line method assuming a four-year useful life and the depreciation allowances in the Tax Return in respect of the asset. Income Statement Tax Return $m $m 2021 20 26 2022 20 35 2023 20 12 2024 20 7 Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2022 were $0.6 million and $1.4 million, respectively. The tax rate is 20% each year. Requirement 1 Students are required to prepare a schedule that - Reconciles the differences between pretax accounting profit and taxable profit in 2022. - Determines the future taxable amounts and future deductible amounts. - Determines the tax payable, deferred tax liability and deferred tax asset at the end of 2022 based on the information given in the question in the space below: Requirement 2 Students are required to prepare the journal entries related to profits tax and deferred tax for 2022 below: 11. Determine the total "future taxable amount" at 2022 year end: 12. What is the total future deductible amount" at 2022 year end: 13. What is the taxable income for 2022? 14. Determine the income tax payable for 2022? 15. What is the balance of the deferred tax liability at 2022 year end? 16. Determine the amount should be credited to the deferred tax liability at 2022 year end. 17. Calculate the balance of the deferred tax asset at 2022 year end? 18. What is the amount should be debited to the deferred tax asset at 2022 year end? 19. What is the income tax expense to be reported in 2022's income statement? 20. What is the net income in 2022

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