Situation 1:
Vancouver Inc, reports the following pre-tax incomes (losses) for both financial reporting purposes and
2018
2019
2020
2021
2022
2023
Year Accounting Income (Loss)
15,000
20.000
50,000
40,000
20,000
(165,000)
Tax Rate
30%
30%
30%
30%
28%
28%
Instructions
Prepare the journal entries for the year 2023 to record income tax. Assume the tax loss is first carried back and that, at the end of 2023, the company is expecting to return to profits in the near future.
Situation 2:
(9 marks)
Surrey Inc. reports accounting "before tax" income of $900,000 for 2022, its first year of operations. The company follows IFS. The following items cause taxable income to be different than income reported on the financial statements.
- Capital cost allowance (on the tax return) is less than depreciation expense on the income statement by $50,000 resulting in a UCC of $1,554,000 and a NBV of $1,504,000
- Included in the accounting income is a gain of $9,000 which resulted from the sale of a $108,000
3.
investment in Government of Canada bonds. Only half of capital gains are ever taxable.
The company provides its customers with installment contract payment plans. For tax purposes, Surrey elected to report income from these sales in the years the receivables are collected.
However, for financial statement purposes, the company recognized all the profit in 2022. The balance in Notes Receivables is $75,000 and is expected to result in taxable amounts of $50,000 in 2023 and $25,000 in 2024.
Surrey's tax rate is 30% for all years and the foreseeable future. The company expects to report taxable income in all future years. There are no other differences between book and taxable income.
Instructions
- Calculate taxable income for 2022. Clearly show your calculations.
- Prepare the journal entries to record income taxes for 2022.
- Prepare the income tax expense section of the income statement for 2022, beginning with the line "Income before income tax."
) Provide the Statement of Financial Position presentation for any resulting deferred tax accounts
at December 31, 2022. Be specific about the classification.
