intermediate financial accounting 10th canadian edition volume 2 chapter 18 solutions

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian EditionCHAPTER 18 INCOME TAXES ASSIGNMENT CLASSIFICATION TABLE Brief Topics Exercises Exercises Problems 1. Income taxes from a 1 business perspective. 2. Difference between 2, 3, 4, 5, 6, 1, 2, 3, 4, 5, 6, 7, 8, 1, 2, 3, 5, 6, accounting income and 7 9, 10, 11, 12, 13, 14, 7, 8, 9, 10, taxable income, 15, 16, 17, 18, 19, 11, 13, 14, calculate taxable 20, 21, 22, 31, 32, 15 income. 33 3. Taxable temporary 5, 8, 9 1, 2, 3, 5, 6, 7, 8, 9, 1, 2, 3, 5, 6, differences, calculation 10, 11, 12, 13, 14, 7, 8, 9, 13, of deferred/future 21, 22, 30, 31 14, 15 income tax liabilities. 4. Deductible temporary 10, 11, 14 1, 2, 3, 4, 5, 6, 7, 8, 1, 2, 3, 5, 6, differences, calculation 9, 10, 11, 15, 16, 17, 7, 8, 9, 13, of deferred/future 18, 19, 22, 30, 31 14, 15 income tax assets. 5. Deferred/future income 5, 6, 7, 8, 9, 4, 5, 7, 8, 9, 10, 11, 1, 3, 4, 5, 6, tax balances. 11, 12, 13 12, 13, 14, 15, 16, 7, 8, 9, 10, 17, 18, 19, 20, 22, 11, 13, 14, 23, 30, 31 15, 16 6. Multiple tax rates, tax 13, 14 9, 10, 14, 18, 19, 21, 2, 3, 4, 14, rate changes. 22, 23, 24, 25, 26, 16 27 7. Loss carrybacks. 15, 16, 17, 24, 25, 26, 27 12 18, 19 Solutions Manual 18-1 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition ASSIGNMENT CLASSIFICATION TABLE (CONTINUED) Brief Topics Exercises Exercises Problems 8. Loss carryforwards. 16, 17, 18, 24, 25, 26, 27 12, 15 19 9. Valuation of 18, 19 27, 28, 29 deferred/future tax asset. 10. Presentation and 20, 21, 22, 5, 7, 8, 9, 11, 15, 1, 2, 3, 4, 5, 6, disclosure of 23 21, 22, 31, 32, 7, 8, 9, 10, 11, income taxes. 33, 34 12, 13, 14, 15 11. Differences 23, 24 7, 8, 9, 11, 15, 1, 2, 3, 5, 6, 7, between IFRS and 20, 21, 22, 27, 8, 9, 10, 11, ASPE. 31, 32, 33, 34 14 12 Temporary 7, 8, 9, 22, 27 1, 2, 3, 4, 5, 6, difference approach 7, 8, 9, 10, 11, in a comprehensive 12, 13, 14, 15, situation 16 Please note: The simplifying assumption is made that unless told that a company follows ASPE, all companies in the end-of-chapter brief exercises, exercises and problems follow IFRS and use the term “deferred” rather than “future” for the tax-related accounts. Solutions Manual 18-2 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE Level of Time Item Description Difficulty (minutes) E18-1 Terminology, relationships, calculations, Simple 10-15 entries. E18-2 Identifying Timing and Permanent Differences Simple 20-25 E18-3 Identifying Timing and Permanent Differences; Simple 20-25 Deferred Tax Liabilities and Deferred Tax Assets E18-4 One temporary difference through three years, Simple 10-15 one rate. E18-5 Intraperiod tax allocation. Moderate 15-20 E18-6 Identify temporary or permanent differences Simple 10-15 and direction of adjustment. E18-7 Two temporary differences, future taxable Moderate 20-25 amounts, one rate, no beginning deferred taxes. E18-8 Two temporary differences, future taxable Moderate 20-25 amounts, one rate, beginning deferred taxes. E18-9 Two temporary differences, future taxable Moderate 20-25 amounts, change in rate. E18-10 Reversing and permanent, future taxable Simple 20-25 amounts, no beginning balances. E18-11 One temporary difference, future taxable Simple 20-25 amounts, one rate, no beginning deferred taxes, prepare statements E18-12 One temporary difference, future taxable Simple 15-20 amounts, one rate, no beginning deferred taxes. E18-13 One temporary difference, future taxable Simple 15-20 amounts, one rate, beginning deferred taxes. E18-14 One temporary difference, future taxable Simple 15-20 amounts, change in rate. E18-15 Permanent and reversing differences, Simple 15-20 calculate taxable income, entry for income taxes. E18-16 One temporary difference, future deductible Simple 15-20 amounts, one rate, beginning deferred taxes. E18-17 One temporary difference, future deductible Simple 15-20 amounts, one rate, beginning deferred taxes. E18-18 One temporary difference, future taxable Moderate 20-25 amount becomes future deductible amount, change in rate. E18-19 One temporary difference, future deductible Moderate 20-25 amounts, change in rate Solutions Manual 18-3 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE (CONTINUED) Level of Time Item Description Difficulty (minutes) E18-20 Depreciation, temporary difference over Moderate 40-45 five years, determine taxable income, taxes payable method. E18-21 Deferred tax liability, change in tax rate. Complex 15-20 E18-22 Two differences, no beginning deferred Simple 15-20 taxes, Multiple rates E18-23 One difference, multiple rates, beginning Simple 20-25 deferred taxes, change in rates. E18-24 Loss carryback and carryforward. Moderate 20-25 E18-25 Carryback and carryforward of tax losses. Simple 15-20 E18-26 Loss carryback and carryforward. Complex 30-35 E18-27 Loss carryback and carryforward using Moderate 30-35 valuation allowance. E18-28 Deferred tax asset, different amounts to be Moderate 20-25 realized. E18-29 Deferred tax asset, different amounts to be Moderate 10-15 realized using valuation allowance. E18-30 Three differences, classify deferred taxes. Simple 10-15 E18-31 Intraperiod tax allocation. Moderate 25-30 E18-32 Taxes payable method-taxes payable Simple 10-15 reporting disclosures. E18-33 Taxes payable method. Simple 10-15 E18-34 Taxes payable method. Moderate 15-20 Solutions Manual 18-4 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. two years. P18-3 Four differences. two rates. all entries and balance sheet presentation under ASPE and IFRS Solutions Manual 18-5 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. earnings per share. change in rate. Weygandt. Kieso. two years. discontinued operations and financial statements. calculate taxable Complex 40-50 income and pre-tax accounting income. P18-8 Three differences. Wiecek. Unauthorized copying. Moderate 50-60 calculation of effective tax rate. several rates. single rate. income and Complex 50-60 retained earnings reporting. distribution. P18-11 Five differences. income statement and retained earnings statements disclosure. several rates and financial statements. McConomy Intermediate Accounting. reconciliation of Complex 50-60 balances and comparative statement disclosure. P18-6 Several differences. P18-9 Two differences. two years. Eleventh Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE (CONTINUED) Level of Time Item Description Difficulty (minutes) P18-1 Three temporary differences and two Moderate 30-35 permanent differences. recovery of prior Moderate 35-40 year taxes. P18-4 One temporary difference. Ltd. tracked for four Complex 50-60 years. two years Complex 50-60 and statement disclosure. two assumptions. one rate. three years. change in tax rate. and effective tax rate. reconcile tax rate. or transmission of this page is strictly prohibited. Complex 45-50 income and statement of financial position reporting. one rate. P18-13 Prior period error correction. reversing Complex 50-60 differences. P18-2 Six differences. two Moderate 40-45 differences. P18-5 Second year of depreciation difference. opening balance. P18-7 Two differences. Young. one year. future income Moderate 25-30 expected. reversing Complex 40-45 differences. statement disclosure. P18-14 One timing difference. . P18-12 Losses carryback and carryforward expected Moderate 35-40 to be realized and not expected to be realized. one permanent difference. two tax rates. P18-10 Two differences. Warfield. Solutions Manual 18-6 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. distribution. Warfield. Unauthorized copying. McConomy Intermediate Accounting. P18-16 Changing tax rates. Wiecek. Kieso. . The tax benefit for only half of the loss carryforward can be recognized. Journal entries and tax reconciliation note is required. or transmission of this page is strictly prohibited. Young. Weygandt. Eleventh Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE (CONTINUED) Level of Time Item Description Difficulty (minutes) P18-15 Loss carryback with timing and permanent Complex 60-75 differences and a tax rate change. fair value accounting Moderate 20-25 of investment properties and revaluation method including their impact on deferred tax balances. Ltd. where the company would be subject to a lower corporate income tax rate. . (b) Higher income taxes paid decreases cash flow from operations. Weygandt. Faber should register its company in Eastern Europe. Unauthorized copying. Kieso. Young.000 Tax rate X 25% 12/31/2017 income tax payable $ 46. BRIEF EXERCISE 18-2 2017 taxable income $184. Eleventh Canadian Edition SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 18-1 (a) Higher income tax expense results in lower profits.000 Solutions Manual 18-7 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. distribution. McConomy Intermediate Accounting. Warfield. Ltd. or transmission of this page is strictly prohibited. (c) Considering only the effect of income taxes. Wiecek. ........... Unauthorized copying..................................500) *Carrying amount and tax base are not given in the exercise.........500 BRIEF EXERCISE 18-4 (a) X(......750 Stmt of (Taxable) Deferred Fin Pos Temporary Tax Tax Account Difference X Rate (Liability) (change in) (change in) PP & E ($14. 3..............750 Income Tax Payable ..000) Taxable income $147.. or transmission of this page is strictly prohibited....000 Solutions Manual 18-8 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 taxable income for 2017 (b) Taxable income [from part (a)]...000 Permanent difference – insurance expense 5........... Eleventh Canadian Edition BRIEF EXERCISE 18-3 Accounting income $156.........25 X = $800....................000) Pretax financial income for 2017.................... 160............ McConomy Intermediate Accounting. 3.................. Kieso.............000 Current income taxes at 25% $ 36............ Wiecek......... $923.........000 Unearned rent ... Ltd..750 Deferred Tax Expense ..000 Excess of CCA over depreciation....000)* 25% ($3...................... distribution...... only the net change in the temporary difference is given.... Young. 36..000 taxes due for 2017 X = $200......................000 ÷ ................ ........000 161... Weygandt...... Warfield..... Current Tax Expense ..............000 Dividend income ....... (60. $800.... 36.000 Reversing difference: CCA > Depreciation (14...500 Deferred Tax Liability .......25) = $200........... 23.. Stmt of (Taxable) Deferred Fin Pos Temporary Tax Tax Account Difference X Rate (Liability) PP & E ($40.000)* 30% ($12. $40.8% Effective tax rate ($40.000.000) 25. distribution. Wiecek.000 25.000) *Carrying amount and tax base are not given in the exercise.000 $39. .000 deferred tax liability. or transmission of this page is strictly prohibited. The carrying amount is greater than the UCC (tax base) by $40. BRIEF EXERCISE 18-6 Divided by Accounting @ 25% Income Accounting income $156.000 reversing difference that occurs in the first fiscal year of Mazur Corp. results in a taxable temporary difference at December 31. Warfield. Ltd. only the net difference is provided.0% Non-deductible insurance expense 5.250/$156. McConomy Intermediate Accounting.000 X 30% tax rate = $12. 2017. Kieso. Eleventh Canadian Edition BRIEF EXERCISE 18-5 The $40.8% Solutions Manual 18-9 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.250 0.8% $ 40. Weygandt. Unauthorized copying.250 25.000 1. Young. 624 6.000 $1. McConomy Intermediate Accounting.25 $375 0 $375 12/31/2018 17.746 0.25 (38) 375 (413) 12/31/2019 12.500 $25. Kieso.500 2018 25.850 18.531 686 845 Solutions Manual 18-10 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.25 687 124 563 12/31/2021 6.000 2.495 12.650 17.850 6. distribution.122 0.746 30% 2. .355 12.000 (150) 0. Young. Eleventh Canadian Edition BRIEF EXERCISE 18-7 (a) Basic Calculations of Capital Cost Allowance.000 $24.000 18.000 12.000 2.000 6.495 6. Amount Difference 2017 $30.850 30% 5.749 8.000 15% $4. Unauthorized copying.650) 2019 17.000 $1. Amounts and Balances: C-B (A) CCA (B) A–B C Carrying Reversing Year Base Rate CCA UCC Deprec.000 645 2020 12. Wiecek.376 (b) Deferred Deductible Deferred Tax Asset Inc.500 $24.746 6.500 30% 7.25 1. Warfield. or transmission of this page is strictly prohibited. in (Taxable) Tax (Liability) Deferred Date Tax Carrying Temporary Tax Asset before Tax Asset Base Amount Difference Rate (Liability) Adjustment (Liability) 12/31/2017 $25.495 30% 3.25 124 (38) 162 12/31/2020 8.000 (1.122 $0 6.500 0.251 2021 8. Ltd. Weygandt.000 $0 3.122 6.000 495 0.746 6.500 $6. .... 70..... 12................500 Stmt of (Taxable) Deferred Fin Pos Temporary Tax Tax Account Difference X Rate (Liability) PP & E ($40......... Weygandt...............000 Reversing difference: CCA > Deprec. Ltd... McConomy Intermediate Accounting. Kieso... Unauthorized copying.600) BRIEF EXERCISE 18-9 Accounting income $ 275...000 X 30% Income tax payable $ 70.... Current Tax Expense ...... Eleventh Canadian Edition BRIEF EXERCISE 18-8 Balance (Taxable) Deferred Sheet Tax Carrying Temporary Tax Tax Account Base – Amount = Difference X Rate = (Liability) Equip...........000 Deferred Tax Liability ..000 $(42...000) Taxable income 235....... 70..000)* 30% ($12..... Warfield... $136.500 Income Tax Payable .... only the net difference is provided.000 $178..... distribution.... 12...... ... Young..... Wiecek.................000 Solutions Manual 18-11 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.................500 Deferred Tax Expense .....000) *Carrying amount and tax base are not given in the exercise.. or transmission of this page is strictly prohibited.. (40.000) 30% $(12.. . or transmission of this page is strictly prohibited..... Weygandt......000 Total income tax expense for 2017 $70.. distribution. 22............ Young..000) Total income tax expense for 2017 $48....000 Deferred tax expense for 2017 Deferred tax liability.000) = $256. Eleventh Canadian Edition BRIEF EXERCISE 18-10 Balance Deductible Deferred Sheet Tax Carrying Temporary Tax Tax Account Base – Amount = Difference X Rate Asset Warranty Liability $0 – (256... 22.000 Deferred Tax Benefit .000 BRIEF EXERCISE 18-12 Current tax expense for 2017 $53.........000 BRIEF EXERCISE 18-11 Current tax expense for 2017 $70.000 (22.....000 Income Tax Payable ....000 Deferred tax liability.........000 17...................... 12/31/2016 40.... ..000 X 25% = $64............. Ltd... 12/31/2017 $52...... Kieso........ McConomy Intermediate Accounting.... Wiecek..........000 Solutions Manual 18-12 Chapter 18 Copyright © 2016 John Wiley & Sons Canada... 70....000 Current Tax Expense .............000 Deferred tax benefit for 2017 Deferred tax asset... 12/31/2017 $62............ Unauthorized copying...000 Deferred Tax Asset. 12/31/2016 35.. Warfield. 70.....................000 Deferred tax asset.. .............. 168....000 25% $ 13.000 X 5%) BRIEF EXERCISE 18-15 Income Tax Receivable ..... Eleventh Canadian Edition BRIEF EXERCISE 18-13 Year Future taxable amount Rate Deferred tax liability 2018 $53.....000 x 5%).. 160...200........900 + ($160. Unauthorized copying.... Weygandt.000 30% 105. 160..600 ($352..600 $196.. distribution.... .900] Solutions Manual 18-13 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.......900 [$120.... Ltd....... McConomy Intermediate Accounting.900 Current Tax Benefit .250 2019 310. Kieso..500 2020 352.. 168.. BRIEF EXERCISE 18-14 Deferred Tax Asset..............350 The increase in the tax rate from 25% to 30% in 2020 would increase the deferred tax expense and liability in 2017 by $17. Young........... Warfield.....000 ($3.......... or transmission of this page is strictly prohibited......000 Deferred Tax Benefit..................... Wiecek....000 25% 77.........000 X 30%) = $168.. ........ Ltd.. 138.............000 X 30%) Deferred Tax Asset. 138...........000 Current Tax Benefit .... 36..........000 Current Tax Benefit .000 Deferred Tax Expense ........................... 138..........000 Allowance to Reduce Deferred Tax Asset to Expected Realizable Value .......................000 Current Tax Benefit ............000 X 30%) (b) Income Tax Receivable ...... Warfield. 36.............................. 138...000 X 30%) Deferred Tax Asset..................... 36....... .......................... Eleventh Canadian Edition BRIEF EXERCISE 18-16 Income Tax Receivable .................. Young................ 138. or transmission of this page is strictly prohibited.............. 36................000 ($460.......000 ($460.. Weygandt.......000 X 30%) Solutions Manual 18-14 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. Unauthorized copying...000) X 30%] BRIEF EXERCISE 18-17 (a) Income Tax Receivable ......000 ($120............. Wiecek. Kieso........................ McConomy Intermediate Accounting..........000 Deferred Tax Benefit ........000 ($460.......000 [($580...... distribution............. 36.... 138..000 – $460................000 Deferred Tax Benefit ........................ 36...................... ... 7........ 7. Ltd........... 7........................ distribution..........000 Deferred Tax Asset ........................................500 Allowance to Reduce Deferred Tax Asset to Expected Realizable Value........ Unauthorized copying.............. Young................... Wiecek..........500 ($25...... .000 X 30%) BRIEF EXERCISE 18-19 (a) Deferred Tax Expense .. 85............. 7... 85.................000 Allowance to Reduce Deferred Tax Asset to Expected Realizable Value…..........500 Current Tax Benefit .................. 85.................................500 ($25. 85.... Warfield.......... Eleventh Canadian Edition BRIEF EXERCISE 18-18 (a) Current Tax Expense .................. or transmission of this page is strictly prohibited............500 Income Tax Payable . Weygandt................. Kieso...500 Deferred Tax Benefit .. 7..... 7.................000 (b) Deferred Tax Expense .......500 Income Tax Payable . 7............. McConomy Intermediate Accounting.... 7...000 Solutions Manual 18-15 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.............................500 Deferred Tax Asset ...............000 X 30%) (b) Deferred Tax Expense ............. 300 Comprehensive income $53.........000 Less: Deferred tax benefit (2.000 Deferred 27. 2....700 Deferred Tax Benefit . McConomy Intermediate Accounting......000 X 30%) Net income $60. 9......... Unauthorized copying..........000 Net income $160. or transmission of this page is strictly prohibited.......OCI .700) 6.....OCI ........000 70. Warfield.........700 ($9.. 9.. Wiecek........ Eleventh Canadian Edition BRIEF EXERCISE 18-20 Unrealized Gain or Loss .700 BRIEF EXERCISE 18-21 (a) Income before income tax $230. ................. Ltd.000 (b) Effective tax rate = $70..... 2.. Weygandt..... FV-OCI investments $9.000 FV-OCI Investments.. distribution...000/$230.....000 Deferred Tax Asset....4% Solutions Manual 18-16 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.....000 Income tax expense Current $43........... Young......... Kieso.000 = 30....000 Other comprehensive income: Unrealized loss... ...000 (b) Long-term liabilities Deferred tax liability $52.... McConomy Intermediate Accounting....... Young..750 Income from continuing operations 65.. or transmission of this page is strictly prohibited... 36....750 Solutions Manual 18-17 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...000 Income tax expense 21...........000 12......250 Discontinued operations: Loss from discontinued operations $16.. .......... Unauthorized copying... Eleventh Canadian Edition BRIEF EXERCISE 18-22 Income from continuing operations before income tax $ 87........000 Long-term liabilities Future tax liability $67....000 Net income $ 53..000 Less: applicable income tax savings 4.... 36.750 Income Tax Payable ...... Warfield....000 BRIEF EXERCISE 18-24 Current Tax Expense ... Wiecek.250 BRIEF EXERCISE 18-23 (a) Current assets Future tax asset $15. Ltd. distribution. Kieso. Weygandt... increase (m) temporary. distribution. Eleventh Canadian Edition SOLUTIONS TO EXERCISES EXERCISE 18-1 (10-15 minutes) (a) greater than (b) less than (c) 304. or transmission of this page is strictly prohibited.000 (g) $8. McConomy Intermediate Accounting.000 – $23. Young.000 X 25%) – $16. Ltd.000 = ($82. Kieso. reversing Solutions Manual 18-18 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Wiecek.000 = ($76. Unauthorized copying.000 divided by 25%) (d) are not (e) less than (f) benefit. Weygandt. Warfield. $15.500 = [($100.000) (j) will not be (k) benefit (l) increase.500] (h) debit (i) $59. . Assuming the estimate for each warranty is valid. 3. tax benefits for the tax deductions should result from the future settlement of the liability. The full. Warfield. Weygandt. which will give rise to the current recognition of a future income tax asset. When the liability is settled in a future year. Young. While the change in value is included in income in the current year. the difference is a permanent one. 2. Ltd. The difference is not due to different methods of depreciation. an expense will be recognized for tax purposes but none will be recognized for financial reporting purposes. Therefore. Therefore. it will not be taxable/deductible until sold. or transmission of this page is strictly prohibited. it is a reversing difference. estimated. reverses. distribution. . Another way to evaluate this situation is to compare the carrying value of the warranty liability with its tax basis (which is zero). but due to different amounts accepted as “cost”. but they will reduce taxable income in varying amounts each respective year. Permanent difference. This is an example of an expense that in the first period reduces pre-tax accounting income more than taxable income and in later years. Unauthorized copying. McConomy Intermediate Accounting. as paid. Since only the amount accepted originally as its tax cost can be amortized in the future. Eleventh Canadian Edition EXERCISE 18-2 (20-25 minutes) (a) 1. Solutions Manual 18-19 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. This type of temporary difference will result in future deductible amounts. Kieso. Reversing difference. Wiecek. Gains recorded for accounting purposes at the disposition of the asset used on trade are deducted and losses are added to income to arrive at taxable income. Reversing difference. three years of warranty costs reduce the current year’s pre-tax accounting income. the total amounts deducted for accounting and for tax purposes will be equal over the three-year period for a given warranty. Reversing difference. (At this time. a portion of the difference may be shown as recaptured capital cost allowance on the building and a portion as capital gains for the land. distribution.) Solutions Manual 18-20 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. The portion of the loss that is expected to be a penalty. Warfield. 5. Kieso. or transmission of this page is strictly prohibited. The write down in the inventory is recognized for accounting purposes in the current year. Reversing difference under IFRS only (ASPE does not allow the revaluation model to be used). 7. Wiecek. will be a permanent difference. but the loss is not allowed to be deducted for tax purposes until the inventory is sold. while dividends received from taxable Canadian corporations are excluded from taxable income. Permanent difference. the taxable income will be impacted by difference between the original cost and the proceeds on disposal. Hence. This is a reversing difference arising in the year accrued. but the loss is not reported for current tax purposes. 6. which cannot be used as a deductible expense for tax purposes. Once the land and buildings are actually disposed of. Permanent and reversing difference. McConomy Intermediate Accounting. Young. The amount included in accounting income is a permanent difference deducted when computing taxable income. The investor’s share of earnings of an investee accounted for by the equity method is included in accounting income. Ltd. Eleventh Canadian Edition EXERCISE 18-2 (CONTINUED) (a) (continued) 4. it is a reversing difference. Weygandt. Any loss from a litigation accrual would not be deductible for tax purposes until paid. Unauthorized copying. but this will not be known until the actual sale proceeds are determined. . This write down for the properties will cause the deferred tax accounts to change. However. this future tax asset will be reversed. Reversing difference – When the retirement obligation is settled. Deferred tax accounts (b) 1. Weygandt. Eleventh Canadian Edition EXERCISE 18-2 (CONTINUED) (a) (continued) 8. 2. Unauthorized copying. 4.  Deferred tax asset (Classified as non- current. Same treatment under ASPE and IFRS. 3. distribution. the full cash amount paid will be reflected as a reduction of taxable income. 5. Holding/unrealized losses  will be deductible when realized  deferred tax asset. in the accounting records. Warfield. along with the gain on settlement in the final year. Holding/unrealized gains  will be taxable when realized  deferred tax liability. (Same treatment under ASPE and IFRS).  Deferred tax asset (Classified as current Solutions Manual 18-21 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young. or transmission of this page is strictly prohibited. No related deferred tax accounts. . there will be an amount in deferred tax asset with respect to this obligation. No related deferred tax accounts. this has been reported each year since the obligation was originally accrued. When the obligation is paid. The impairment loss will be deductible in future periods and cause taxable income to be less than accounting income in the future. Same treatment under ASPE and IFRS. Ltd. As a result. Kieso. The estimated warranty costs will be deductible in future periods and cause taxable income to be less than accounting income in the future. McConomy Intermediate Accounting. assuming the three-year warranty liability is classified as non-current liability) under both IFRS and ASPE. Wiecek. Eleventh Canadian Edition under ASPE and non-current under IFRS). Wiecek. . Kieso. Ltd. Solutions Manual 18-22 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield. Unauthorized copying. distribution. Weygandt. or transmission of this page is strictly prohibited. Young. McConomy Intermediate Accounting. Wiecek. The related future tax asset should be eliminated with this settlement. there will be a reduction in the future tax asset account that had been increasing in previous years as the expense was recorded for accounting purposes but not yet for tax purposes. The cash settlement of the retirement obligation results in the current taxable income being lower than the current accounting income. Weygandt. Solutions Manual 18-23 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield. McConomy Intermediate Accounting. distribution. Under IFRS. (Classified as current or non-current based on the expected reversal date under ASPE and non- current under IFRS). 8. The penalty portion does not have related deferred tax accounts. Eleventh Canadian Edition EXERCISE 18-2 (CONTINUED) (b) (continued) 6. Kieso. The rest of it results in deferred tax asset. or transmission of this page is strictly prohibited. the loss will be deductible in future periods and cause taxable income to be less than accounting income in the future. . As such. 7. Unauthorized copying. This is not allowed under ASPE. Ltd.  Deferred tax asset (or a reduction in the related future tax liability account) (Classified as non- current under IFRS). Young. Permanent diff. Future deductible amounts Deferred tax asset 13. Future deductible amounts Deferred tax asset 11. Ltd. Future taxable amounts Deferred tax liab. Unrealized gains: future taxable amounts Deferred tax liab. Reversing diff. No effect on future tax returns No deferred taxes 8. Future deductible amounts Deferred tax asset 2. Future taxable amounts Deferred tax liab. 7. Warfield. Kieso. Reversing diff. No effect on future tax returns No deferred taxes 9. Weygandt. . Future deductible amounts Deferred tax asset 3. No effect on future tax returns No deferred taxes 4. Reversing diff. Reversing diff. or transmission of this page is strictly prohibited. Permanent diff. Permanent diff. No effect on future tax returns No deferred taxes 10. Reversing diff. Solutions Manual 18-24 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. No effect on future tax returns No deferred taxes 5. Unauthorized copying. Permanent diff. Young. 6. Reversing diff. distribution. Reversing diff. Wiecek. Eleventh Canadian Edition EXERCISE 18-3 (20-25 minutes) (a) (b) 1. McConomy Intermediate Accounting. Future taxable amounts Deferred tax liab. Reversing diff. Permanent diff. Holding/unrealized losses: future deductible amounts Deferred tax asset 12. ...000 originating $85.... Therefore. Ltd......... 73... Eleventh Canadian Edition EXERCISE 18-4 (10-15 minutes) (a) Deductible Temporary Amount of Temporary Difference Difference at Year Originating or Reversing during the Year Year-End 2017 $160........... Kieso...000 reversing 61.....500 Deferred Tax Benefit ... Warfield.300 *The fact that the temporary difference will result in future deductible amounts is determined by the fact that in the year of origination...........000 (b Future Deferred Deductible Tax Date Amounts Tax Rate Asset* 12/31/2017 $85..... Unauthorized copying......... McConomy Intermediate Accounting.000 30% 18... 73..500 Income Tax Payable .. in the period(s) of reversal..............000 x 30%0] Solutions Manual 18-25 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..... ...000 – $125.........000 x 30%)] Deferred Tax Asset........000 reversing 67......... 25... or transmission of this page is strictly prohibited...100 12/31/2019 61........ 25..... Young...000 = $18...500 [$85.000 30% $25............500 [Taxable income x income tax rate ($245.000 = $85.000 2018 $139....... we can expect pre-tax accounting income to exceed taxable income...000 – $245......000 = $6....000 2019 $131.000 – $121...... Wiecek............. (c) 2017 Current Tax Expense . the temporary difference causes taxable income to exceed pre-tax accounting income. Weygandt.500 12/31/2018 67... distribution..000 30% 20. ......300-$20... 37................................. Unauthorized copying................500 Income Tax Payable . Ltd. distribution...$25.. 37...............800 Deferred Tax Asset ............. ...400 Deferred Tax Asset ..300 Income Tax Payable ..... 1..... 36...................... Wiecek.. Kieso........400 [$20..... Warfield. 36...100] Solutions Manual 18-26 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..................................... 1............. 5.......800 [$18.............000 x 30%)] Deferred Tax Expense ..........................500] 2019 Current Tax Expense ......100 ....... Eleventh Canadian Edition EXERCISE 18-4 (CONTINUED) (c) (continued) 2018 Current Tax Expense . McConomy Intermediate Accounting............... Young..... 5.........500 [Taxable income x income tax rate ($125......................................................... Weygandt....000 x 30%)] Deferred Tax Expense ...300 [Taxable income x income tax rate ($121........... or transmission of this page is strictly prohibited.. ... 31..... Eleventh Canadian Edition EXERCISE 18-5 (15-20 minutes) (a) Unrealized Gain or Loss .600) Comprehensive income $123.......... Unauthorized copying...OCI $10..050 Deferred Tax Asset .................500 ($28......................000 Deferred Tax Asset..................... Wiecek........ 33..............650 ($5.... ...500 X 30%) $(1...... Statement of Comprehensive Income Year Ended December 31.....650) L Balance before adjustment 8.... Young...400 Other comprehensive income (loss) 23..000 X 30%) – $0] (b) FV-OCI Investments ...........000 Other comprehensive income (loss) Unrealized gains (losses) on FV-OCI 33............450 (19.......... Dec. or transmission of this page is strictly prohibited......... Kieso................000) investments Less: Deferred tax (expense) benefit (10.... 8..... 2018 2017 Net income $100......500 X 30%) Balance....................... 8.....OCI . Warfield..... McConomy Intermediate Accounting....400 Deferred Tax Benefit ..... Ltd. 1.......400 Solutions Manual 18-27 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....400 A Adjustment to deferred tax asset/liability account and 2018 deferred tax expense .500 Unrealized Gain or Loss .. 33................... 28.. Weygandt.000 FV-OCI Investments.. 8.500) Deferred Tax Expense ...OCI .450 $80. 28....400 [($28....000 $100..............050 (c) Hang Technologies Inc..... 10....500 ($28.050) 8..000 + $5.... 2018: ($5..OCI .400 Deferred Tax Liability ....OCI .. distribution.. i add 3. EXERCISE 18-6 (10-15 minutes) (a) (b) Add or deduct from accounting income 1. .650 as a non-current liability. distribution. iii add 4. McConomy Intermediate Accounting. i add 8. ii deduct 7. ii deduct 2. ii deduct 6. or transmission of this page is strictly prohibited. IFRS does not permit any deferred tax accounts to be reported in current assets or current liabilities. Young. i add Solutions Manual 18-28 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Weygandt. Eleventh Canadian Edition EXERCISE 18-5 (CONTINUED) (d) The company will report a deferred tax liability of $1. Wiecek. i add 5. i add 12. i add 11. Warfield. Unauthorized copying. Ltd. iii deduct 10. iii deduct 9. Kieso. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-7 (20-25 minutes) (a) Statement of Deductible Deferred For (f) Financial Position (Taxable) Tax ASPE Account Tax Carrying Temporary Tax Asset Curr. Dec 31, 2017 Base Amount Differences Rate (Liability) or LT PP & E $980,000 $930,000 50,000 25% $ 12,500 LT Construction in Process* 350,000 500,000 (150,000) 25% (37,500) C Deferred tax liability, December 31, 2017 (25,000) Deferred tax liability before adjustment 0 Incr. in deferred tax liability, and deferred tax expense for 2017 ($ 25,000) *For the completed contract method, the construction in process account reports only construction costs excluding any gross profit recognized under the percentage-of- completion method. (b) Accounting income $195,000 Reversing differences: Property, plant, and equipment: Depreciation expense $170,000 Capital cost allowance ($1,100,000 – $980,000) (120,000) 50,000 Construction in Process: Gross profit—Percentage completion ($500,000 – $350,000) (150,000) Gross profit—Completed contract method 0 (150,000) Taxable income $95,000 Current income taxes at 25% $23,750 Solutions Manual 18-29 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-7 (CONTINUED) (c) Current Tax Expense ......................................... 23,750 Income Tax Payable ................................... 23,750 Deferred Tax Expense ........................................ 25,000 Deferred Tax Liability ................................. 25,000 (d) Income before income tax $195,000 Income tax expense Current $23,750 Deferred 25,000 48,750 Net income $146,250 (e) Non-current liabilities Deferred tax liability $25,000 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. (f) Refer to last two columns in table in part (a) above. Non-current assets Future tax asset $12,500 Current liabilities Future tax liability 37,500 Solutions Manual 18-30 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-8 (20-25 minutes) (a) Statement of Deductible Deferred For (f) Financial Position (Taxable) Tax ASPE Account Tax Carrying Temporary Tax Asset Cur. or Dec. 31, 2018 Base Amount Differences Rate (Liability) LT PP & E $620,000 $640,000 ($20,000) 25% ($5,000) LT a Construction in Process 760,000 940,000 (180,000) 25% (45,000) C Deferred tax liability, December 31, 2018 (50,000) Deferred tax liability before adjustment (25,000) Incr. in deferred tax liability, and deferred tax expense for 2018 ($25,000) a $350,000 + $410,000 = $760,000 (b) Accounting income $120,000 Reversing differences: Property, plant, and equipment: Depreciation expense ($460,000 – $170,000) $290,000 Capital cost allowance ($980,000 – $620,000) (360,000) (70,000) Construction in Process: Gross profit – Percentage completion ($440,000 – $410,000) (30,000) Gross profit – Completed contract method 0 (30,000) Taxable income $20,000 Current income taxes at 25% $5,000 Solutions Manual 18-31 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-8 (CONTINUED) (c) Current Tax Expense ......................................... 5,000 Income Tax Payable ................................... 5,000 Deferred Tax Expense ........................................ 25,000 Deferred Tax Liability ................................. 25,000 (d) 2018 2017 Income before income tax $120,000 $195,000 Income tax expense Current 5,000 23,750 Deferred 25,000 25,000 30,000 48,750 Net income $90,000 $146,250 (e) 2018 2017 Non-current liabilities $50,000 $25,000 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. (f) Refer to last two columns in table in part (a) above. 2018 2017 Non-current assets Future tax asset $12,500 Current liabilities Future tax liability $45,000 37,500 Non-current liabilities Future tax liability 5,000 Solutions Manual 18-32 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. .............000) 5% 7...000 $50... McConomy Intermediate Accounting. distribution... Young.. Ltd.000 (150....500 C Decrease in deferred tax liability due to decrease in tax rate $5.. 5.... (Asset) Curr.000 500. or transmission of this page is strictly prohibited....000 Deferred Tax Benefit .... Eleventh Canadian Edition EXERCISE 18-9 (20-25 minutes) (a) Decrease in Statement of Deductible Tax Deferred For (g) Financial Position (Taxable) Rate Tax ASPE Account Tax Carrying Temporary Dec.000 $930. 15....... 2018 Base Amount Differences rease Liability LT PP & E $980. Weygandt. . Unauthorized copying.. Kieso.... Warfield.....000 September 15...500) LT Construction in Process 350..000 5% ($2.... Wiecek...000 Solutions Manual 18-33 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. 2018 adjustment to record the impact of the decrease in tax rate on the company’s net taxable temporary difference: Deferred Tax Liability ... 5. or Sep. 2018 (40. Warfield.000) Sept. McConomy Intermediate Accounting.000 Solutions Manual 18-34 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 – $5.000 – $170.000 (180. 15 deferred tax liability before adjustment ($25.000) C Deferred tax liability.000 – $620.000) 20% (36. Eleventh Canadian Edition EXERCISE 18-9 (CONTINUED) (b) Statement of Deductible Deferred For (g) Financial Position (Taxable) Tax ASPE Account Tax Carrying Temporary Tax Asset Curr.000 Reversing differences: Property. Kieso.000 Incr. or transmission of this page is strictly prohibited. and deferred tax expense for 2018 $(20.000) (c) Accounting income $120.000 – $410. 2018 Base Amount Differences Rate (Liability) LT PP & E $620.000) 20% ($4. or Dec.000) LT Construction in Process 760. Young.000) 20.000) (30.000 Current income taxes at 25% current rate $5.000) (360. distribution.000 $640.000 Capital cost allowance ($980.000 ($20. Wiecek. Ltd.000) (70. December 31. Unauthorized copying.000 940.000) Gross profit – Completed contract method 0 (30. in deferred tax liability. Weygandt.000) $290.000) Taxable income $20. plant. 31.000) Construction in Process: Gross profit – Percentage completion ($440. . and equipment: Depreciation expense ($460. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-9 (CONTINUED) (d) Current Tax Expense ......................................... 5,000 Income Tax Payable ................................... 5,000 Deferred Tax Expense ........................................ 20,000 Deferred Tax Liability ................................. 20,000 (e) 2018 2017 Income before income tax $120,000 $195,000 Income tax expense Current 5,000 23,750 Deferred * 15,000 25,000 20,000 48,750 Net income $100,000 $146,250 *Deferred tax expense for 2018 of $15,000 is comprised of a deferred tax benefit of $5,000 due to a decrease in tax rates effective September 15, 2018; and deferred tax expense of $20,000 due to differences in the period of recognition of certain expenses for accounting purposes versus for income tax purposes. (f) 2018 2017 Non-current liabilities Deferred Tax Liability $40,000 $25,000 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. Solutions Manual 18-35 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-9 (CONTINUED) (g) Refer to last two columns in table in part (b) above. 2018 2017 Non-current assets Future tax asset $12,500 Current liabilities Future tax liability $36,000 37,500 Non-current liabilities Future tax liability 4,000 Solutions Manual 18-36 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-10 (20-25 minutes) (a) Unrealized Gain or Loss .................................... 2,000 FV-NI Investments ...................................... 2,000 FV-OCI Investments ........................................... 4,000 Unrealized Gain or Loss—OCI ................... 4,000 (b) All of Christina’s investments must be reported on the statement of financial position at their fair value. The resulting difference between this and the tax base of the investments represents a temporary difference. The unrealized gain recognized is not taxable, and any unrealized loss recognized is not deductible, until the investments are sold at a gain or at a loss. The resulting taxable temporary difference must have the corresponding deferred tax recorded at the tax rate that Christina expects to pay (or recover in the case of a loss) on this gain or loss in future accounting periods. In this case the enacted rate is 30%; this rate needs to be applied to arrive at the amount of any deferred taxes. Solutions Manual 18-37 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-10 (CONTINUED) (c) Statement of Deductible Deferred Financial Position (Taxable) Tax Account Tax Carrying Temporary Tax Asset Dec. 31, 2017 Base Amount Differences Rate (Liability) Equipment $8,500 $8,000* $500 30% $150 FV-NI Investments 60,000 58,000 2,000 30% 600 FV-OCI Investments 71,000 75,000 (4,000) 30% (1,200) Deferred tax liability, December 31, 2017 (450) Deferred tax asset/liability before adjustment 0 Incr. in deferred tax liability, and deferred tax expense for 2017 ($450) *(CCA is $10,000 X 30% X ½ year rule = $1,500) Solutions Manual 18-38 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. ...000 Permanent difference: 50% of meals and entertainment of $24...000 X 30%) – $0] Solutions Manual 18-39 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...000 Capital cost allowance (1.... Unauthorized copying.........200 [($4.000 12....... Eleventh Canadian Edition EXERCISE 18-10 (CONTINUED) (d) Accounting income [excludes entries in part (a) as no tax effect] $110..625 (e) Current Tax Expense ..................... 30........ Kieso. Warfield...... 750 Deferred Tax Expense—OCI ......000 122..................... Wiecek.... or transmission of this page is strictly prohibited... 750 Deferred Tax Benefit . distribution........................ Ltd......000 Reversing difference: Depreciation expense $2..... 1............................625 Income Tax Payable ... Weygandt........500 Current income taxes at 25% $30. ............... McConomy Intermediate Accounting.......... 30...200 Deferred Tax Liability ............ Young..625 Deferred Tax Asset .....500) 500 Taxable income $122.......... 1...... ... The resulting taxable temporary difference must have the corresponding deferred tax recorded at the tax rate that Henry expects to pay (or recover in the case of a loss) on this gain or loss in future accounting periods...125 ($1..750) 30% ($1.......... The unrealized gain recognized is not taxable.. 89. 1....... or transmission of this page is strictly prohibited. until the investments are sold at a gain or at a loss.. and any unrealized loss recognized is not deductible......... Warfield.. . McConomy Intermediate Accounting....... Young......................................450) represents a temporary difference..................Kieso.200 ($3....... The resulting difference between this and the tax base of the investments (cost of $314.....475 Deferred Tax Expense ...125 – opening balance of $0) Solutions Manual 18-40 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. Weygandt..250 Current income taxes at 30% $89.. 89..450 $318. Wiecek..000 Reversing difference: Unrealized gain on Investments (FV-NI) (3..... Eleventh Canadian Edition EXERCISE 18-11 (20-25 minutes) (a) The investments must be reported on the statement of financial position at their fair value.....475 Income Tax Payable .. (b) Stmt of (Taxable) Deferred Fin Pos Tax Carrying Temporary Tax Tax Account Base – Amount = Difference X Rate (Liability) Invest....... (FV-NI) $314.750) Taxable income $298. In this case the enacted rate is 30% that needs to be applied to arrive at the amount of any deferred taxes.125) (c) Accounting income $302..... 1... Unauthorized copying...........475 (d) Current Tax Expense ....125 Deferred Tax Liability . Ltd... distribution. Under ASPE. so Henry’s future tax liability would be classified as current on a classified statement of financial position. McConomy Intermediate Accounting. all deferred tax assets and liabilities are reported as non-current items on a classified statement of financial position. Weygandt. .600 Net income $211. they are classified as a current liability. Eleventh Canadian Edition EXERCISE 18-11 (CONTINUED) (e) Income before income tax $302. Unauthorized copying. Wiecek. or transmission of this page is strictly prohibited. distribution. Ltd.Kieso. (g) Current liabilities: Income tax payable $89.475 Deferred 1. Young.000 Income tax expense Current $89. future tax assets and future tax liabilities are segregated into current and non-current categories. The classification for the future tax account must also be current since the temporary difference relates to an asset that is classified as current on the statement of financial position.475 Non-current liabilities: Deferred tax liability $ 1.475 Future tax liability 1. therefore.400 (f) Current liabilities: Income tax payable $89.125 90.125 Under IFRS. Solutions Manual 18-41 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.125 Current income taxes are due well within 12 months of the statement of financial position date. Warfield. 500) Deferred tax liability before adjustment 0 Increase in deferred tax liability.000) $0 ($95. Unauthorized copying.000 + $30.000) 30% ($28. distribution. 2017 Base* Amount* Differences Rate (Liability) Equipment ($95.000) Future years Total 2018 2019 2020 (Taxable) temporary differences Depreciation in excess of CCA $95. 31. .500 $9. Weygandt. McConomy Intermediate Accounting.000 Solutions Manual 18-42 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. or transmission of this page is strictly prohibited.500 $7.500) * Values not provided in this exercise ($25. Ltd. 2017 (28.000 + $40.000 $25.000 Tax rate enacted for the year 30% 30% 30% Deferred tax liability $28. December 31.000 $12. and deferred tax expense for 2017 ($28.000 $40.000 $30. Young. Warfield. Wiecek.000 = $95. Eleventh Canadian Edition EXERCISE 18-12 (15-20 minutes) (a) Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. Kieso.500) Deferred tax liability. ................. McConomy Intermediate Accounting..........500 (d) Income before income tax $200......000 Taxable income 105.... Wiecek. Eleventh Canadian Edition EXERCISE 18-12 (CONTINUED) (b) 2017 Accounting income $200....000 Permanent differences: -0- Reversing difference: CCA greater than depreciation 95.000 Income tax expense Current $31...500 Deferred 28..............Kieso.500 (c) Current Tax Expense .. 28... Ltd....... distribution... Weygandt.... 28......500 Deferred Tax Liability .....500 Income Tax Payable .............. Warfield. 31................................. . Young..................000 Current income taxes – 30% $31. Unauthorized copying.......... or transmission of this page is strictly prohibited.......500 Deferred Tax Expense .....000 Net income $140..000 Solutions Manual 18-43 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.500 60.... 31.. 000 Tax rate enacted for the year 30% 30% Deferred tax liability $21.000) 30% ($21. and deferred tax benefit for 2018 $7.500 *Values not provided in this exercise ($30.000) Future years Total 2019 2020 (Taxable) temporary differences Depreciation in excess of CCA $70.000 $9. Kieso. Young. . Ltd.000 $40. 31.000 $12.000) Deferred tax liability.000 Solutions Manual 18-44 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. Weygandt.500) Decrease in deferred tax liability.000 + $40. Warfield.000) Deferred tax liability before adjustment (28. December 31. McConomy Intermediate Accounting. or transmission of this page is strictly prohibited.000 $30.000 = $70. Eleventh Canadian Edition EXERCISE 18-13 (15-20 minutes) (a) 2018 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. distribution. 2018 Base* Amount* Differences Rate (Liability) Equipment ($70.000) 0 ($70. 2018 (21. Wiecek. 000) 0 ($40.000) Deferred tax liability.000 $12. Ltd. Unauthorized copying.000 $40.000) Decrease in deferred tax liability. or transmission of this page is strictly prohibited.000 Tax rate enacted for the year 30% Deferred tax liability $12.000) 30% ($12. Young.000) Deferred tax liability before adjustment (21. 2019 ($12. distribution. Wiecek. Eleventh Canadian Edition EXERCISE 18-13 (CONTINUED) (a) (continued) 2019 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. and deferred tax benefit for 2019 $9. Kieso.000 *Values not provided in this exercise Future year Total 2020 (Taxable) temporary differences Depreciation in excess of CCA $40. 2019 Base* Amount* Differences Rate (Liability) Equipment ($40. . Weygandt. 31. December 31. McConomy Intermediate Accounting.000 Solutions Manual 18-45 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield. .. Wiecek.....000 Solutions Manual 18-46 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....................... Warfield.500 $ 63............... 61......... distribution........000 $ 210....500 2019 Current Tax Expense ........000 Deferred Tax Liability .. 9........... 7.Kieso.....000 $ 210......000 (c) 2018 Current Tax Expense ................ or transmission of this page is strictly prohibited.......................... McConomy Intermediate Accounting........... 61........500 Deferred Tax Benefit.................. 9.............. Weygandt................ Young........... 7.........500 Deferred Tax Liability ......000 Taxable income $ 205.........000 Enacted tax rate X 30% X 30% Current income tax expense $ 61... Ltd.................. 63..000 Income Tax Payable ................ 63.....000 30.....................000 Deferred Tax Benefit. Unauthorized copying.500 Income Tax Payable ..........000 Taxable income $ 205..000 $ 180.................000 Reversing differences – CCA < depreciation expense 25..... Eleventh Canadian Edition EXERCISE 18-13 (CONTINUED) (b) 2018 2019 Pre-tax accounting income $ 180............. ........ their changes were accrued at the expected tax rates in 2017. This trend in net income is not a coincidence.500 Deferred (Benefit) (7. Eleventh Canadian Edition EXERCISE 18-13 (CONTINUED) (d) 2018 Income before income tax $ 180.000 (e) The net income is identical for 2018 and 2019.000) 54.000 Net Income $ 126. Weygandt. McConomy Intermediate Accounting. Solutions Manual 18-47 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. distribution.000 2019 Income before income tax $ 180. Warfield.500) 54. Subsequent reversals of balances in the temporary differences reduce the deferred tax liability account at the expected amounts each subsequent year. or transmission of this page is strictly prohibited. . The net income remains constant due to the consistent amount of income before income tax.000 Income tax Current $ 61. Ltd.000 Income tax Current $ 63. Young. Although the temporary balances have changed.Kieso. Wiecek.000 Net Income $ 126.000 Deferred (Benefit) (9. 500 $7.000) 25% ($17.000 Solutions Manual 18-48 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. McConomy Intermediate Accounting. 2018 (17. distribution. Wiecek. and deferred tax benefit for 2018 $11.500) Deferred tax liability before adjustment (28. Weygandt. Eleventh Canadian Edition EXERCISE 18-14 (15-20 minutes) (a) 2018 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.500 $10.000 $40. Warfield. Ltd.500) Deferred tax liability.000 *Values not provided in this exercise Future years Total 2019 2020 (Taxable) temporary differences Depreciation in excess of CCA $70.500) Decrease in deferred tax liability. Unauthorized copying.000) 0 ($70. or transmission of this page is strictly prohibited.000 Tax rate enacted for the year 25% 25% Deferred tax liability $17.000 $30. . December 31. Young. Kieso. 2018 Base* Amount* Differences Rate (Liability) Equipment ($70. 31. distribution. 2019 (10. Weygandt.000 Tax rate enacted for the year 25% Deferred tax liability $10.000) 25% ($10.000) Deferred tax liability before adjustment (17. 31. and deferred tax benefit for 2019 $ 7. Eleventh Canadian Edition EXERCISE 18-14 (CONTINUED) (a) (continued) 2019 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. Young.000 $40. Kieso. McConomy Intermediate Accounting.500 *Values not provided in this exercise Future year Total 2020 (Taxable) temporary differences Depreciation in excess of CCA $40. 2019 Base* Amount* Differences Rate (Liability) Equipment ($40.500) Decrease in deferred tax liability. Ltd.000) Deferred tax liability.000 Solutions Manual 18-49 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. December 31. or transmission of this page is strictly prohibited. Warfield.000) 0 ($40. . Wiecek.000 $10. .................................... Unauthorized copying...... Eleventh Canadian Edition EXERCISE 18-14 (CONTINUED) (b) 2018 2019 Pre-tax accounting income $ 180...500 (c) 2018 Current Tax Expense ..000 $ 210.............000 $ 180.....500 Income Tax Payable ......................... Wiecek......... 61.........500 Solutions Manual 18-50 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.............. 11....................500 Deferred Tax Benefit... distribution...........000 30.........000 Enacted tax rate X 30% X 25% Current income tax expense $ 61... ........500 Deferred Tax Liability ..000 Reversing differences – CCA < depreciation expense 25..... 61....... 7........... 52.. 7..... Warfield........500 Deferred Tax Liability . or transmission of this page is strictly prohibited. McConomy Intermediate Accounting.......500 $ 52.. Ltd.... Weygandt.............. Young.......000 Taxable income $ 205.............000 2019 Current Tax Expense ................... 11.500 Income Tax Payable ........000 Taxable income $ 205...................Kieso................000 Deferred Tax Benefit.. 52..000 $ 210.. or transmission of this page is strictly prohibited. Weygandt.500) 45. Eleventh Canadian Edition EXERCISE 18-14 (CONTINUED) (d) 2018 Income before income tax $ 180.000) 50.Kieso. distribution.000 Income tax Current $ 61.000 Solutions Manual 18-51 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young. Ltd. Warfield.500 Net Income $ 129. McConomy Intermediate Accounting.000 Income tax Current $ 52. .000 Net Income $ 135. Wiecek.500 Deferred (benefit) (11.500 Deferred (benefit) (7. Unauthorized copying.500 2019 Income before income tax $ 180. 000 – $16......... or Account Differences X Rate (Liability) LT PP & E ($16... 38.000 30% 7. 2...... 31.....000 120...... 2017 2.. (c) Current Tax Expense ..000 Current income taxes – 30% $38. Warfield............ Weygandt. or transmission of this page is strictly prohibited. Wiecek..200* Deferred Tax Benefit ..400 (b) Deductible Deferred for (g) Statement of (Taxable) Tax ASPE Fin Pos Temporary Tax Asset Curr.Kieso........ and deferred tax benefit for 2017 $ 2........ Eleventh Canadian Edition EXERCISE 18-15 (15-20 minutes) (a) Accounting income $105. distribution......... only the net difference is provided....400... ... 4...000)* 30% ($4....000 Permanent differences: Non-deductible fines 15..400 Deferred Tax Liability .....400 Deferred Tax Asset ....... these totals can be reconciled: ($24........400 Income Tax Payable . Young.400 Deferred tax asset before adjustment 0 Incr..............800) LT Unearned rent revenue 24.......800) = $2....400 Because of a flat tax rate. Ltd......400 *Carrying amount and tax base are not given in the exercise.000) X 30% = $7.......200 + ($4..200 C Deferred tax asset......000 Reversing differences: Excess of CCA over depreciation (16...000) Excess rent collected over rent earned 24...... Solutions Manual 18-52 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...000 Taxable income $128.... 7.800* *or a net debit to Deferred Tax Asset of $2. in deferred tax asset............ McConomy Intermediate Accounting........... Dec. Unauthorized copying.. 38.... . Young. distribution. Eleventh Canadian Edition EXERCISE 18-15 (CONTINUED) (d) Income before income tax $105.400 (g) Current assets Future tax asset $7. Ltd.400) 36.3% Effective tax rate ($36.3% (f) Non-current assets Deferred tax asset $2. Warfield.000 34.Kieso.3% $ 36.000 $ 31.000 Income tax expense Current $38.500 4.000 Net income $69.000 (e) Divided by Accounting @ 30% Income Accounting income $ 105.0% Non-deductible fines 15.200 Non-current liabilities Future tax liability 4. Weygandt. or transmission of this page is strictly prohibited.400 Deferred (benefit) (2.800 Solutions Manual 18-53 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000/$105.000) 34.000 4.500 30. McConomy Intermediate Accounting. Unauthorized copying. Wiecek. 000 $50. Ltd. December 31.750 $16. Unauthorized copying. Kieso.500 Deferred tax asset before adjustment 0 Increase in deferred tax asset. or transmission of this page is strictly prohibited.500 Deferred tax asset.500 Future years Total 2018 2019 2020 Deductible temporary difference Warranty liability $150.000 Tax rate enacted for the year 25% 25% 25% Deferred tax asset $37. 2017 37.000 25% $37. distribution. Weygandt. Warfield.000 $35.250 Solutions Manual 18-54 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. .500 $8.000 $65. and deferred tax benefit for 2017 $37. Eleventh Canadian Edition EXERCISE 18-16 (15-20 minutes) (a) Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.000) $150.500 $12. Young. Wiecek. 2017 Base Amount Differences Rate (Liability) Warranty liability 0 ($150. 31. McConomy Intermediate Accounting. ..................000 Current income taxes – 25% $71.... Wiecek...... 37........... 71.............. Young. Eleventh Canadian Edition EXERCISE 18-16 (CONTINUED) (b) 2019 Accounting income $135...500) 33....... Ltd.........500 Deferred Tax Benefit...250 Income Tax Payable . Weygandt............250 Deferred (benefit) (37... .............000 Taxable income 285.250 (c) Current Tax Expense .. McConomy Intermediate Accounting...........250 Deferred Tax Asset.....750 Net income $101............ Unauthorized copying....... distribution. or transmission of this page is strictly prohibited... 37..........000 Permanent differences: -0- Reversing difference: Warranty expense > warranty costs incurred 150..500 (d) Income before income tax $135..000 Income tax expense Current $71................. 71.....Kieso........250 Solutions Manual 18-55 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.... Warfield. Warfield.250 Solutions Manual 18-56 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 Deferred tax asset.750 $16. Young.000 $35.000 $8. December 31. Kieso.000) $100. Unauthorized copying. Wiecek.000 25% $25. Weygandt.000 $65. distribution. 2018 Base Amount Differences Rate (Liability) Warranty liability 0 ($100. . and deferred tax expense for 2018 ($12. Eleventh Canadian Edition EXERCISE 18-17 (15-20 minutes) (a) 2018 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.500) Future years Total 2019 2020 Deductible temporary difference Warranty liability $100. Ltd. 2018 25.500 Decrease in deferred tax asset. or transmission of this page is strictly prohibited. 31. McConomy Intermediate Accounting.000 Tax rate enacted for the year 25% 25% Deferred tax asset $25.000 Deferred tax asset before adjustment 37. McConomy Intermediate Accounting. Ltd.000 25% $16.000) $65.000 $65.000 Tax rate enacted for the year 25% Deferred tax asset $16. Young.750) Future year Total 2020 Deductible temporary difference Warranty liability $65. 2019 16. Warfield. December 31. Kieso.250 $16. distribution. . Weygandt.250 Solutions Manual 18-57 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Wiecek. or transmission of this page is strictly prohibited. Unauthorized copying. 31. 2019 Base Amount Differences Rate (Liability) Warranty liability 0 ($65. and deferred tax expense for 2019 ($8.000 Decrease in deferred tax asset.250 Deferred tax asset. Eleventh Canadian Edition EXERCISE 18-17 (CONTINUED) (a) (continued) 2019 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.250 Deferred tax asset before adjustment 25. ............ Wiecek.. 26. ...............000 $ 120...................... 26......Kieso..........................250 $ 30............250 Income Tax Payable .............000 $ 155..500 2019 Current Tax Expense ..................... Warfield...... 12.. Ltd.... McConomy Intermediate Accounting...... 8............000 Taxable income $ 105...........500 Deferred Tax Asset .750 Deferred Tax Asset ....................000 $ 120............... 12.............................................000 Reversing difference – Warranty costs incurred > warranty expense (50....000 Income Tax Payable ............. Young....000) Taxable income $ 105..... or transmission of this page is strictly prohibited....250 Deferred Tax Expense .........000 (c) 2018 Current Tax Expense ...................... distribution..000 Deferred Tax Expense .. 30.000 Enacted tax rate X 25% X 25% Current income tax expense $ 26............ Weygandt...... 8.............. Eleventh Canadian Edition EXERCISE 18-17 (CONTINUED) (b) 2018 2019 Pre-tax accounting income $ 155....... Unauthorized copying...750 Solutions Manual 18-58 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) (35.. 30. 750 Net Income $ 116.Kieso. Although the temporary balances have changed.250 Deferred 12.250 (e) The net income is identical for 2018 and 2019. The net income remains constant due to the consistent amount of income before income tax. Eleventh Canadian Edition EXERCISE 18-17 (CONTINUED) (d) 2018 Income before income tax $ 155. Solutions Manual 18-59 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young. Subsequent reversals of balances in the temporary differences reduce the deferred tax asset account at the expected amounts each subsequent year. Wiecek. Unauthorized copying. distribution. Warfield. Weygandt.500 38.000 Income tax Current $ 26.000 Deferred 8.750 38. Ltd.750 Net Income $ 116. or transmission of this page is strictly prohibited. their changes were accrued at the expected future income tax rates in 2017.250 2019 Income before income tax $ 155. This trend in net income is not a coincidence. McConomy Intermediate Accounting. .000 Income tax Current $ 30. The resulting deductible temporary difference must have the corresponding deferred tax recorded at the tax rate that Henry expects to recover on this loss in future accounting periods.125) Adj..000 Reversing difference: Unrealized loss on Invest..... or transmission of this page is strictly prohibited.....000 Reversing difference: 2017 Unrealized gain realized in 2018 3..000 (b) As discussed in Exercise 18-11 the difference between the carrying amount ($40...000 $40.000) and the tax base ($42. 2018 is a temporary difference.....Kieso.725 (d) Accounting income $120. to deferred tax account..... (FV- NI) 2. Warfield..725 Solutions Manual 18-60 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. In this case the enacted rate of 30% needs to be applied to arrive at the amount of any deferred taxes..725 Current tax expense for 2018 $37... Eleventh Canadian Edition EXERCISE 18-18 (20-25 minutes) (a) Unrealized Gain or Loss ..750 Current income taxes at 30% $37. The loss is not deductible until the investments are sold..... 2... and deferred tax benefit for 2018 $1.. Wiecek.. Ltd...000 30% $600 Balance before adjustment (1.........000 $2. 2..750 Taxable income $125... McConomy Intermediate Accounting.. (c) Stmt of Deductible Deferred Fin Pos Tax Carrying Temporary Tax Tax Asset Account Base – Amount = Difference X Rate (Liability) Invest... (FV-NI) $42..... Young.. . distribution.. Weygandt..... Unauthorized copying..000 FV-NI Investments .000) at December 31. ........ Young.........725) 36..725 (f) Income before income tax $120................725 Income Tax Payable ........... 600* Deferred Tax Liability .......... Weygandt. Ltd....... 1... McConomy Intermediate Accounting. Warfield........... ................................ the entry would be: Deferred Tax Asset/Liability ................725 Deferred (benefit) (1............ Solutions Manual 18-61 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..............000 Income tax expense Current $37...... a debit balance indicating an asset and a credit balance indicating a liability..000 (g) Non-current assets Deferred tax asset $600 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.... Unauthorized copying... Wiecek.125* Deferred Tax Benefit ............... 37..000 Net income $84.. or transmission of this page is strictly prohibited.... 1.... if one statement of financial position account—a Deferred Tax Asset/Liability account—is used. 1................... 37.....725 Deferred Tax Asset............ Eleventh Canadian Edition EXERCISE 18-18 (CONTINUED) (e) Current Tax Expense ................... 1..............725 Deferred Tax Benefit .......Kieso.....725 *Alternatively.......... distribution. .......... Wiecek........000 $2. 37........ Weygandt................. Unauthorized copying......................625 (i) Current assets Future tax asset $600 The classification must be current since the temporary difference relates to an asset that is classified as current on the statement of financial position.......725 Deferred Tax Asset. 1.........625 *or Deferred Tax Asset/Liability ... and deferred tax benefit for 2018 $1..... Solutions Manual 18-62 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....625 Current Tax Expense ............... McConomy Intermediate Accounting....... (FV-NI) $42.... Young..125* Deferred Tax Benefit.000 $40..........125) Adj.. or transmission of this page is strictly prohibited.......... 37.........Kieso.... Warfield......... Eleventh Canadian Edition EXERCISE 18-18 (CONTINUED) (h) Stmt of Deductible Deferred Fin Pos Tax Carrying Temporary Tax Tax Asset Account Base – Amount = Difference X Rate (Liability) Invest.........000 25% $500 Balance before adjustment (1... 1. to deferred tax account.725 Income Tax Payable ......... 500* Deferred Tax Liability ...... Ltd............................ ......... 1....... distribution...... Kieso. Wiecek.000) $100. and deferred tax expense for 2018 ($9. distribution. December 31.500 Decrease in deferred tax asset. 31.000 Deferred tax asset before adjustment 37. Warfield.200 Solutions Manual 18-63 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.500) Future years Total 2019 2020 Deductible temporary difference Warranty liability $100. Weygandt.000 Deferred tax asset.800 $18. 2018 28.000 Tax rate enacted for the year 28% 28% Deferred tax asset $28. or transmission of this page is strictly prohibited. Young. McConomy Intermediate Accounting. Eleventh Canadian Edition EXERCISE 18-19 (20-25 minutes) (a) 2018 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.000 $65.000 $9. .000 28% $28. Ltd.000 $35. Unauthorized copying. 2018 Base Amount Differences Rate (Liability) Warranty liability $0 ($100. 800) Future year Total 2020 Deductible temporary difference Warranty liability $65. 31. . Weygandt. Wiecek. Kieso. Ltd.000 Tax rate enacted for the year 28% Deferred tax asset $18.000) $65. distribution.000 Decrease in deferred tax asset.000 $65. Young.200 Solutions Manual 18-64 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. or transmission of this page is strictly prohibited.200 Deferred tax asset.200 Deferred tax asset before adjustment 28. December 31. Unauthorized copying.200 $18. 2019 Base Amount Differences Rate (Liability) Warranty liability $0 ($65. 2019 18. Eleventh Canadian Edition EXERCISE 18-19 (CONTINUED) (a) (continued) 2019 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.000 28% $18. and deferred tax expense for 2019 ($9. Warfield. McConomy Intermediate Accounting. .....000) (35.800 Solutions Manual 18-65 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.....250 Income Tax Payable ..................................000 $ 120.. Young...... distribution..250 Deferred Tax Expense ..000 $ 155.. Eleventh Canadian Edition EXERCISE 18-19 (CONTINUED) (b) 2018 2019 Pre-tax accounting income $ 155.. 9. 9................................................. Weygandt..........000 Reversing difference – Warranty costs incurred > warranty expense (50...... 9.......600 (c) 2018 Current Tax Expense .. Ltd....... Warfield...... 26.800 Deferred Tax Asset ... Unauthorized copying......................... McConomy Intermediate Accounting.600 Deferred Tax Expense . or transmission of this page is strictly prohibited. ...............600 Income Tax Payable .......Kieso..........250 $ 33........000) Taxable income $ 105....... 9....... 33.........000 Taxable income $ 105. 26.........................500 2019 Current Tax Expense .....000 $ 120....000 Enacted tax rate X 25% X 28% Current income tax expense $ 26..........500 Deferred Tax Asset ................ 33....... Wiecek........ Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-19 (CONTINUED) (d) 2018 Income before income tax $ 155,000 Income tax Current $ 26,250 Deferred 9,500 35,750 Net Income $ 119,250 2019 Income before income tax $ 155,000 Income tax Current $ 33,600 Deferred 9,800 43,400 Net Income $ 111,600 Solutions Manual 18-66 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-20 (40-45 minutes) (a) Basic Calculations of Capital Cost Allowance, Amounts and Balances: C–B (A) (B) A–B (C) Carrying Reversing Year Base CCA UCC Deprec. Amount Difference 2017 $600,000 X 40 % X .5 $ 120,000 $ 480,000 $120,000 $480,000 $0 2018 480,000 X 40 % 192,000 288,000 120,000 360,000 (72,000) 2019 288,000 X 40 % 115,200 172,800 120,000 240,000 4,800 2020 172,800 X 40 % 69,120 103,680 120,000 120,000 50,880 2021 103,680 X 40 % 41,472 62,208 120,000 0 78,528 $537,792 (b) 2017 2018 2019 2020 2021 Accounting income $ 340,000 $340,000 $340,000 $340,000 $ 340,000 Reversing difference -0- (72,000) 4,800 50,880 78,528 Taxable income $ 340,000 $268,000 $344,800 $390,880 $ 418,528 X 30 % X 30 % X 30 % X 30 % X 30 % Income tax payable $102,000 $80,400 $103,440 $117,264 $125,558 Solutions Manual 18-67 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-20 (CONTINUED) (c) and (d) 2017 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. 31, 2017 Base Amount Differences Rate (Liability) Property, plant, & equipment $480,000 $480,000 0 30% $0 Deferred tax asset/liability, December 31, 2017 0 Deferred tax asset/liability before adjustment 0 Increase in deferred tax liability, and deferred tax expense for 2017 $0 Current Tax Expense ......................................... 102,000 Income Tax Payable ................................... 102,000 ($340,000 X 30%) part (b) Solutions Manual 18-68 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition EXERCISE 18-20 (CONTINUED) (c) and (d) (continued) 2018 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. 31, 2018 Base Amount Differences Rate (Liability) Property, plant, & equipment $288,000 $360,000 $(72,000) 30% ($21,600) Deferred tax liability, December 31, 2018 (21,600) Deferred tax liability before adjustment 0 Increase in deferred tax liability, and deferred tax expense for 2018 ($21,600) Current Tax Expense ......................................... 80,400 Income Tax Payable ................................... 80,400 ($268,000 X 30%) part (b) Deferred Tax Expense ........................................ 21,600 Deferred Tax Liability ................................. 21,600 Solutions Manual 18-69 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. ........ 1. 103........800 X 30%) part (b) Deferred Tax Liability .... Young........ 31........000 ($67...... plant.440 Income Tax Payable .......... 103............ Ltd... December 31. or transmission of this page is strictly prohibited.. distribution........ and deferred tax benefit for 2019 $1. 2019 Base Amount Differences Rate (Liability) Property.... .. 2019 (20. Weygandt.. Eleventh Canadian Edition EXERCISE 18-20 (CONTINUED) (c) and (d) (continued) 2019 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.....440 ($344..... Kieso.200) 30% ($20..160) Deferred tax liability before adjustment (21...... 1..440 Deferred Tax Benefit. McConomy Intermediate Accounting....... Warfield.600) Decrease in deferred tax liability... Unauthorized copying.160) Deferred tax liability.. Wiecek.......440 2019 Current Tax Expense ... & equipment $172............................440 Solutions Manual 18-70 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...........800 $240........ ... Young.......264 Deferred Tax Benefit.......... Wiecek.. 31.. 15. 117..320) 30% ($4..............896) Deferred tax liability before adjustment (20.160) Decrease in deferred tax liability.. Warfield. distribution........... Weygandt.........000 ($16...... plant & equipment $103.264 ($390......... McConomy Intermediate Accounting...............264 2020 Current Tax Expense .... 2020 (4..... Ltd... ....680 $120.. Kieso......... and deferred tax benefit for 2020 $15............880 X 30%) part (b) Deferred Tax Liability ............. or transmission of this page is strictly prohibited. 117... 15......896) Deferred tax liability...264 Income Tax Payable .. December 31...264 Solutions Manual 18-71 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....... Unauthorized copying.... 2020 Base Amount Differences Rate (Liability) Property... Eleventh Canadian Edition EXERCISE 18-20 (CONTINUED) (c) and (d) (continued) 2020 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.. .. Kieso.. distribution...... 31...........528 X 30%) part (b) Deferred Tax Liability . 125........ a net debit to Deferred Tax Asset/Liability of $23...558 Income Tax Payable ......208 $0 $62........ .... Solutions Manual 18-72 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.662 Deferred tax liability before adjustment (4.. 18.. Young.......558 *Alternately......................662 Deferred tax asset.... Unauthorized copying.................... plant.... Warfield......... Ltd.......... Eleventh Canadian Edition EXERCISE 18-20 (CONTINUED) (c) and (d) (continued) 2021 Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec.... Weygandt.. 23........... 125......896* Deferred Tax Asset.... 4...558 if only one account is used..558 2021 Current Tax Expense ......... McConomy Intermediate Accounting. 2021 Base Amount Differences Rate (Liability) Property............ 2021 18....................... or transmission of this page is strictly prohibited.. Wiecek..208 30% $18.558 ($418. December 31.........896) Increase in deferred tax asset.662* Deferred Tax Benefit.. & equipment $62. and deferred tax benefit for 2021 $23... ......... Weygandt.....................000 X 30%) 2018 Current Tax Expense ........................ 103..... 102........ 80..................................558 ($418..........000 ($340..528 X 30%) Solutions Manual 18-73 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. ..................... 125...880 X 30%) 2021 Current Tax Expense ....... 103..............Kieso.......... distribution...264 ($390..558 Income Tax Payable ......... 125..........000 Income Tax Payable ...... 117.............. Young.......................... 102............................................ Ltd.........800 X 30%) 2020 Current Tax Expense .. Unauthorized copying....264 Income Tax Payable ..... Warfield................. McConomy Intermediate Accounting...........440 Income Tax Payable .......... 80......440 ($344.. or transmission of this page is strictly prohibited..... 117.......000 X 30%) 2019 Current Tax Expense ......400 ($268......... Eleventh Canadian Edition EXERCISE 18-20 (CONTINUED) (e) 2017 Current Tax Expense .........400 Income Tax Payable ................... Wiecek.. 800. Ltd.000 Tax rate 30% * 29% Future tax liab.440. Weygandt.Kieso.000 $2. Solutions Manual 18-74 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield.000 $4. Therefore. $ 720.000 balance of the future tax liability account at January 1.416.800. or transmission of this page is strictly prohibited. all deferred tax balances are reported as non- current in a classified statement of financial position. Young. Eleventh Canadian Edition EXERCISE 18-21 (15-20 minutes) (a) Future Years 2018 2019 Total Non- Current current** Future taxable amounts $2. (b) Under IFRS. under ASPE the future tax liability related to the portion of the receivable coming due in 2018 is current and the future tax liability balance related to the portion of the receivable coming due in 2019 is non-current. Wiecek.400. distribution. by the $4. Unauthorized copying.000 *The prior tax rate of 30% is calculated by dividing the $1. McConomy Intermediate Accounting. **One-half of the instalment receivable is classified as a current asset and one-half is non-current.000 $1. Therefore.000 $ 696.400.416. .000 temporary difference at that same date. 2017.000. the non-current deferred tax liability is reported as $1. ..440. distribution.Kieso..000 Deferred Tax Benefit .............. as revised (1.000 Solutions Manual 18-75 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) Decr............ 24. Ltd. Unauthorized copying....000) Deferred tax liability before rate adjustment (1.......416. Wiecek.800... Young.416.000)* several ($1... Eleventh Canadian Edition EXERCISE 18-21 (CONTINUED) (c) Statement of (Taxable) Financial Position Temporary Tax Deferred Tax Account Differences X Rate (Liability) Receivable ($4. McConomy Intermediate Accounting..... and deferred tax benefit for 2017 from tax rate change $24.000 * see part (a) for the detailed calculations Deferred Tax Liability .... 24..000) Deferred tax liability. Weygandt......... Warfield... in deferred tax liability......... or transmission of this page is strictly prohibited. . ..000 Future Years 2018 2019 2020 Total Future (taxable) deductible amounts Depreciation ((($(20........ 156.000) $( 60.500) $ 42.000) $(10.000 Income Tax Payable .000) $(30.000) $ (2........ Non-current Assets Deferred tax liability $ 42.. 42..500 ($20. 156.....000 $200..500 Deferred Tax Benefit ... Weygandt......000 Enacted tax rate 30% 30% 25% Net deferred tax asset (($ 54.... Wiecek.500 Deferred Tax Asset .... Warfield.............. Current assets Future tax asset $60.500 Under ASPE..500 (b) IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position..500 Net deferred tax asset before adjustment 0 Increase in deferred tax asset $ 42...000 x 25%) Solutions Manual 18-76 Chapter 18 Copyright © 2016 John Wiley & Sons Canada............000 Tax rate 30% Income taxes payable for 2017 $156... Ltd. distribution.000 x 30% + $10...000)) ) Warranty liability 200... .......... 42.. future tax assets and future tax liabilities are segregated into current and non-current categories. Unauthorized copying...... The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference.....000 x 30%) Long-term liabilities Future tax liability $17.000 x 30% + $30..000 Current Tax Expense . Eleventh Canadian Edition EXERCISE 18-22 (15–20 minutes) (a) Taxable income for 2017 $520... Young........ or transmission of this page is strictly prohibited. McConomy Intermediate Accounting...000 ($200......Kieso.000) $(9. . Deferred Tax Expense . 31.....750 $ 11..250) *Carrying amount and tax base are not given in the exercise. Young.... 26.. Unauthorized copying..250 liability (b) Statement of (Taxable) Financial Position Temporary Tax Deferred Tax Account Differences X Rate (Liability) Prop. Ltd.250 Deferred Tax Liability .... or transmission of this page is strictly prohibited... Dec..000) Incr. 26...000 Enacted tax rate 30% 30% 25% 25% Deferred tax $23...000)* several ($67..Kieso.250) Deferred tax liability before adjustment (41. Weygandt....000 $55......... 2017 (67.... ..... McConomy Intermediate Accounting.. Wiecek.000 $46.500 $ 67. Warfield....600 $13. distribution.. and deferred tax expense for 2017 ($26. only the net difference is provided.400 $18.000 $241.... ($241..250) Deferred tax liability... & equip... plant..250 Solutions Manual 18-77 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..000 $62.. in deferred tax liability. Eleventh Canadian Edition EXERCISE 18-23 (20-25 minutes) (a) Future Years 2018 2019 2020 2021 Total Future taxable amounts $78.. 000 $241..000 Enacted tax rate 29% 27% 27% 27% Deferred tax $22. Young....... Solutions Manual 18-78 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.420 $ 66... 620 Deferred Tax Benefit .000 $62. if financial statements are prepared only annually.........250) Decr.... in deferred tax liability. distribution. & equip.......... Warfield. revised balance (66.630 liability Statement of (Taxable) Financial Position Temporary Tax Deferred Tax Account Differences X Rate (Liability) Prop. it would be combined with other year-end adjustments for 2018 income tax that record the income tax expense....000 $46. 620 Note to Instructor: The journal entry above is effective and should be made at the time the new rates were substantively enacted or.Kieso.000 $55.850 $12..740 $14......630) Deferred tax liability before adjustment [part (b)] (67.000)* several ($66.... Ltd.. Weygandt.. and deferred tax benefit for 2018 $620 *Carrying amount and tax base are not given in the exercise.. ($241... Wiecek. Unauthorized copying. Eleventh Canadian Edition EXERCISE 18-23 (CONTINUED) (c) Future Years 2018 2019 2020 2021 Total Future taxable amounts $78...... McConomy Intermediate Accounting...630) Deferred tax liability... only the net difference is provided..... Deferred Tax Liability ... or transmission of this page is strictly prohibited. . plant....620 $16.... .... no entry is made to recognize the benefit in the year.... or transmission of this page is strictly prohibited............ No entry can be made to record any tax benefit from the remaining $70...000 tax loss carryforward from this...000 of tax losses in the future...000 X 30% = $15...000 of taxable income and it can deduct $50. but this amount must be disclosed in a note. Young...250 2016 Income Tax Receivable ...000 and a current tax benefit from previously unrecognized tax losses available for carryforward of $50.. 58...$235... the existence of the $70... 32..... 32.. Income tax expense in 2017 is $-0-. Because they are still uncertain about being able to benefit from the remaining $20... However. both a current tax expense of $50.....000 of the $70..000 ..000 X 25%) ...........000 of tax losses available for carryforward. Weygandt....500 2015 Current Tax Expense ........ distribution..250 Income Tax Payable ($105.. McConomy Intermediate Accounting.000 could both be recognized and reported..000)) This leaves $305... the company earned $50. .. 2017 In 2017. Warfield.500 Income Tax Payable ($130..000 X 25%) .750 ** ** (25% X ($130.. Alternatively. Unauthorized copying.....000 X 30% = $15. Eleventh Canadian Edition EXERCISE 18-24 (20-25 minutes) (a) 2014 Current Tax Expense ....... Solutions Manual 18-79 Chapter 18 Copyright © 2016 John Wiley & Sons Canada......000 of tax losses because it is not more likely than not that the company will actually benefit from them.. 58... They report a taxable income amount in 2017 of $-0-.. 26.000 + $105.......... Wiecek...750 Current Tax Benefit ... Ltd....000 = $70.......Kieso.... 26........000 loss carryforward should be disclosed in a note....... 000 Current tax expense -0- Net income $50.250) 2017 Income (loss) before income tax $50. Eleventh Canadian Edition EXERCISE 18-24 (CONTINUED) (b) 2014 Income (loss) before income tax $130.750 2016 Income (loss) before income tax $(305.Kieso.750 Net loss $(246.000 Current tax expense $15.000) -0- Net income $50.000 Or. Young. Wiecek. Warfield.500 2015 Income (loss) before income tax $105.000 Current tax benefit from unrecognized tax losses carried forward (15. Unauthorized copying. Ltd.000) Current tax benefit due to loss carryback 58. McConomy Intermediate Accounting. alternatively: Income before income tax $50.000 Income tax expense – current 32.250 Net income $78. Weygandt. or transmission of this page is strictly prohibited.000 Solutions Manual 18-80 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.500 Net income $97. distribution.000 Income tax expense – current 26. . ........ 12.............. 20. McConomy Intermediate Accounting........... 20. 12.250 Income Tax Payable ($145.... 95........ 20.... 48...............000 [25% X ($130............000 to 2014....000 – $50......000 is carried back $250......... 95.................................500) 2018 Current Tax Expense ............ 12.000 to 2013 and $80.... 36.. Eleventh Canadian Edition EXERCISE 18-25 (15-20 minutes) 2014 Current Tax Expense ..............$-0- 2017 Current Tax Expense .. leaving $50.......500 Deferred Tax Benefit......... Unauthorized copying.......000 X 25%) ........... 20....... Income Tax Receivable ....... Warfield................. 48..........Kieso....000 Current Tax Benefit ...................000 ($160...500 Deferred Tax Asset .....................000 X 30%) Current Tax Benefit ... Weygandt...............................000 X 25%) Deferred Tax Asset.............. ....................000 ($250............. Young.......250 Solutions Manual 18-81 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..500 ($0 – $12. or transmission of this page is strictly prohibited............500 ($50.....000 X 30% + $80..........000 2015 Income Tax Receivable ..............................000 Income Tax Payable ........000 to carry forward...... Ltd........... 12......................000 X 25%) ....... distribution.....000 Income Tax Payable ($80.......000 loss carryforward)] Deferred Tax Expense .000 2016 The 2016 loss of $380..000 X 25%) .... 36...... Wiecek... ............000 X 25%) ............500 **30% X ($280.....500 Current Tax Benefit ..000 to carryforward................ 22....000 – $120.............000] + [25% X $90.000) X 30%] Future Tax Expense............... Eleventh Canadian Edition EXERCISE 18-26 (30-35 minutes) (a) 2015 Current Tax Expense ........000 – $70..... 21..... Young..500 Income Tax Payable ($90. Warfield...............000 Income Tax Payable ($120. leaving $70..000 is carried back............000** *[($220... Income Tax Receivable .... 21. $120............................000 to 2016.000] = $52.....................500** Future Tax Asset......000 2018 Current Tax Expense ......000 to 2015 and $90..................... or transmission of this page is strictly prohibited........000) Solutions Manual 18-82 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.........000 Future Tax Benefit ...........Kieso.. 21.......000) = $21.. 52..000 2016 Current Tax Expense ... 21...... Weygandt...500 2017 The 2017 loss of $280.... Wiecek.. .........000 Future Tax Asset ....... 45.. Unauthorized copying.....................000 ($0 – $21....000 – $90.......................... 30... 45...000 Income Tax Payable ...000** **[25% X $120......000 X 25%) 30... Ltd. distribution... 22......... McConomy Intermediate Accounting..... 52....... .... 15...... McConomy Intermediate Accounting...750 Future Tax Benefit ....750) Solutions Manual 18-83 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....750 Future Tax Asset ........... Young......000 (c) 2017 Income Tax Receivable ..000 Net income $154.....000 – $70. distribution.000 66........................... 15..000) X 30%] Future Tax Expense..000 $21...... Ltd... 52...000 Income tax Current tax expense $45.Kieso....000 – $90..........000 Income Tax Payable .......500 **30% X ($280....500) 2018 Income (loss) before income tax $220...... 15.... or transmission of this page is strictly prohibited.....000 – $120....... Wiecek..... 52................000] + [25% X $90.........500 Net loss $(206..........500 Current Tax Benefit .................000 ( 73.......500 ** Future Tax Asset.............. ..500 Future benefit due to loss carryforward 21.....750 2018 Current Tax Expense ..........000 [($220.000] = $52. 45.... 45.........000) = $21.000 Future tax expense 21.. Weygandt........750** **[25% X $120....... 15.... Unauthorized copying......................000 X 75% = $15.....750 ($0 – $15... Eleventh Canadian Edition EXERCISE 18-26 (CONTINUED) (b) 2017 Income (loss) before income tax $(280........ Warfield..000) Income tax benefit Current benefit due to loss carryback $52............ McConomy Intermediate Accounting.000 Future tax expense 15.000-$15. Eleventh Canadian Edition EXERCISE 18-26 (CONTINUED) (d) 2017 Income (loss) before income tax $(280. The loss carryback is optional.750 60.Kieso. or transmission of this page is strictly prohibited. as well as supporting evidence for recognized future tax assets Note: For tax planning purposes. Solutions Manual 18-84 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Wiecek. Young. if the corporation anticipates profitable years ahead. distribution.250 Net loss $(211.000 Income tax Current tax expense $45. Unauthorized copying. .500 Future benefit due to loss carryforward 15. it may not carry back its losses in order to take advantage of the higher rates for 2018 and beyond.000) Income tax benefit Current benefit due to loss carryback $52. Weygandt. Ltd.250 (e) Riley’s notes should include information about the unused tax loss carryforward ($21.750) 2018 Income (loss) before income tax $220. Warfield.750 Net income $159.750 68.750). 000] + [25% X $90.. distribution.................... 52......... 52............................. 45.......000) = $21.......000) Allowance to Reduce Deferred Tax Asset to Expected Realizable Value .........................000) X 30%] Future Tax Expense ...... 45....250 Allowance to Reduce Deferred Tax Asset to Expected Realizable Value .............500 Current Tax Benefit . 21................ ..000 – $120......000 – $70.. 5.....000** *[($220... 21.....500 Future Tax Asset .......500 [25% X $120................ Young.250 Future Tax Expense .... Warfield.000] = $52.......................000 Future Tax Benefit..250 ($21........000 Income Tax Payable .........000 ($0 – $21......................... .. 5................. Eleventh Canadian Edition EXERCISE 18-27 (30-35 minutes) (a) 2017 Income Tax Receivable ........ Weygandt................. 21......000 X 25%) 2018 Current Tax Expense ............. McConomy Intermediate Accounting... Wiecek......000 30% X ($280.... Unauthorized copying...... 5...........250 Solutions Manual 18-85 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....Kieso......000 Future Tax Benefit .................................... or transmission of this page is strictly prohibited.................... 5....................... Ltd...............000 – $90.. 21...000 Future Tax Asset. 250 Net loss $(211. Wiecek.750 Net income $159.500 Future benefit due to loss carryforward 15.000 Income tax Current tax expense $45. (e) The only difference is the deferred tax asset would be classified as a non-current asset on the statement of financial position. Young.000) Income tax benefit Current benefit due to loss carryback $52.750 - (d) Both the Future Tax Asset account and the Allowance to Reduce Future Tax Asset to Expected Realizable Value account should be adjusted for the change in the enacted tax rates for 2018.750. the Future Tax Asset account would be $15. .750 60. McConomy Intermediate Accounting. Solutions Manual 18-86 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. distribution. This adjustment should be recorded in the accounts as soon as it is known and can be measured.750 68. Eleventh Canadian Edition EXERCISE 18-27 (CONTINUED) (b) 2017 Operating loss before income tax $(280. Ltd.Kieso. Instead. Weygandt.250 (c) Current assets: 2017 2018 Future Tax Asset $ 21. and a valuation allowance may not be used.750) 2018 Operating income before income tax $220. Warfield. Unauthorized copying.250) - Deferred Tax Asset (net) $ 15.000 - Less: Allowance to Reduce Deferred Tax Asset to Expected Realizable Value (5.000 Future tax expense 15. or transmission of this page is strictly prohibited. .....000* 30% $90... distribution.600 Statement of Deductible Financial Position Temporary Tax Deferred Tax Account Differences X Rate Asset Warranty Liabilities $300.............. ......... Dec. Young..... 9.. Weygandt... or transmission of this page is strictly prohibited.........000 Deferred tax asset before adjustment 81. 9..... 273...600 Income Tax Payable ....... and deferred tax benefit for 2017 $9. Warfield. 31....600 Taxable income $912.....Kieso..... Eleventh Canadian Edition EXERCISE 18-28 (20-25 minutes) (a) Current Tax Expense .000 Deferred Tax Benefit ..000 Incr...........000 Solutions Manual 18-87 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Wiecek...... Unauthorized copying......000 Deferred tax asset. in deferred tax asset.... McConomy Intermediate Accounting....000 Enacted tax rate X 30% Income tax payable $273......... 273. 2017 90...000 *Carrying amount and tax base are not given in the exercise..... only the net difference Deferred Tax Asset ..... Ltd............ ............000 Note to instructor: This entry would be combined with the other entries for the year that would be setting up any deferred tax asset or liability for current year activity.600 Income Tax Payable ... Wiecek......... Eleventh Canadian Edition EXERCISE 18-28 (CONTINUED) (b) (1.....000) *Carrying amount and tax base are not given in the exercise.......... Dec. 31. or transmission of this page is strictly prohibited. Warfield......................... 2017 65........000 Deferred tax asset before adjustment 81...) 2017 Current Tax Expense ..000 Deferred Tax Benefit . Weygandt.. 273.....600 Statement of Deductible Deferred Financial Position Temporary Tax Tax Account Differences X Rate Asset Warranty Liabilities $300.000* 30% $90... Unauthorized copying.000 Less amount not likely to be realized (25....... distribution.... in deferred tax asset and deferred tax expense increase for 2017 ($16. .............. only the net difference Deferred Tax Expense ..000 Deferred Tax Asset ........ Young.. Solutions Manual 18-88 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...........Kieso...000) Deferred tax asset........000 Decr. 16. McConomy Intermediate Accounting......... 25.....) 2018 Deferred Tax Asset ... 25. Ltd........000 (2.................... 16........... 273...... .000) Deferred Tax Expense .. 25. Young... Ltd... Unauthorized copying............... Warfield....... 273......................Kieso....... Weygandt. ..............600 Income Tax Payable ....000 ($90........................ Wiecek....000 Deferred Tax Benefit..... or transmission of this page is strictly prohibited......000 (b) Allowance to Reduce Deferred Tax Asset to Expected Realizable Value ..... distribution.... 25........ 273...000 Deferred Tax Benefit ...................... 9....000 Solutions Manual 18-89 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...........000 – $81.............600 Deferred Tax Asset............000 Allowance to Reduce Deferred Tax Asset to Expected Realizable Value ... McConomy Intermediate Accounting.. Eleventh Canadian Edition EXERCISE 18-29 (10-15 minutes) (a) Current Tax Expense . 25.............. 25...... 9.............................................. 000 – $91.000 Obligation Current Instalment Instalment Sale _____ (218. .000 Under ASPE. Weygandt. McConomy Intermediate Accounting.000) Long-term liabilities Deferred tax liability $ 402. ($275. Young. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference. (b) Current assets Future tax asset $ 91. distribution. Wiecek. or transmission of this page is strictly prohibited. Solutions Manual 18-90 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.000 Long-term liabilities Future tax liability 493. Unauthorized copying.Kieso. future tax assets and future tax liabilities are segregated into current and non-current categories. Ltd. Warfield.000) Plant Assets Noncurrent Litigation Lawsuit Loss $91.000 ($493.000) Receivable Noncurrent Totals $91.000 ($493. Eleventh Canadian Edition EXERCISE 18-30 (10-15 minutes) (a) Related (b) Resulting Stmt of (ASPE) Temporary Deferred Tax Fin Pos Classi- Difference Asset Liability Account fication Deprec. Unauthorized copying. and deferred tax expense for 2017 for continuing operations ($1.110) Deferred tax liability before adjustment 0 Incr.700)* 30% ($1. in deferred tax liability. or transmission of this page is strictly prohibited. only the net difference is provided.700) Non-taxable dividends 4. 2017 (1.830 $3.100 5.110) Deferred tax liability.500 $64. Dec.700 Current income taxes for 2017 @ 30% $16. continuing operations: Statement of (Taxable) Financial Position Temporary Tax Deferred Tax Account Differences X Rate (Liability) PP&E ($3.610 Calculation of deferred tax expense.000 Expenses 216.Kieso.700) (3. McConomy Intermediate Accounting.500 57.100 Taxable income $56. .000 7.780 $20. Eleventh Canadian Edition EXERCISE 18-31 (25-30 minutes) (a) Calculation of current income tax expense: Income from Discon- Continuing tinued Operations Operations Total Accounting income: Revenue $273. 31. Wiecek.500 Golf club dues Reversing differences: CCA > depreciation (3.700) (1.000 $118.600 $68.700) Litigation loss _______ 5. Ltd.500 Permanent differences: (1.000 110. Weygandt.500 4.110) *Carrying amount and tax base are not given in the exercise. Solutions Manual 18-91 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield.100 $12. Young. distribution. . 16.....110 Deferred Tax Asset .............. 1....530 Deferred Tax Benefit – Discontinued Operations ....... 20. only the net difference is provided. or transmission of this page is strictly prohibited..100* 30% $1. McConomy Intermediate Accounting......... (b) Current Tax Expense . discontinued operations: Statement of Deductible Financial Position Temporary Tax Deferred Tax Account Differences X Rate Asset Litigation Liability $5.. 1......... Weygandt......................530 Solutions Manual 18-92 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..... distribution.110 Deferred Tax Liability ........830 Current Tax Expense – Discontinued Operations ........................... 3.. Young....530 Deferred tax asset..530 Deferred tax asset before adjustment 0 Incr..780 Income Tax Payable . Operations $1...... Wiecek.... 1.. Warfield...... in deferred tax asset. Eleventh Canadian Edition EXERCISE 18-31 (CONTINUED) (a) Calculation of deferred tax expense.... and defered tax benefit for 2017 – for Disc..530 *Carrying amount and tax base are not given in the exercise..610 Deferred Tax Expense ........ Ltd...... 31. Unauthorized copying........ 1..Kieso............. 2017 1. Dec....... ... McConomy Intermediate Accounting. Wiecek.310 Earnings per share: Income from continuing operations $3. Solutions Manual 18-93 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.830 Deferred tax 1.91 Income from discontinuing operations 0.000 Income tax Current tax $ 16.530) 2.110 17. distribution.250 Net Income $44. Ltd.110) $420 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.250 5. Warfield.530 – $1. Unauthorized copying.Kieso.780 Deferred tax (1. Young.500 Net of applicable income tax: Current tax $3. Eleventh Canadian Edition EXERCISE 18-31 (CONTINUED) (c) Income before income tax and discontinued operations $ 57. or transmission of this page is strictly prohibited.060 Income from discontinuing operations 7. Weygandt.52 Net Income $4.43 (d) Non-current assets Deferred tax asset ($1.940 Income from continuing operations 39. . distribution. Wiecek. . Unauthorized copying. Young. or transmission of this page is strictly prohibited. Warfield. The classification of an individual deferred tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference. future tax assets and future tax liabilities are segregated into current and non-current categories. Weygandt.530 Non-current liabilities Future tax liability 1. Eleventh Canadian Edition EXERCISE 18-31 (CONTINUED) (e) Current assets Future tax asset $1.Kieso. Solutions Manual 18-94 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Ltd.110 Under ASPE. McConomy Intermediate Accounting. . along with: 1. a reconciliation of the actual tax rate or expense or benefit to the statutory amount for income (loss) before discontinued operations.Kieso.475 Income Tax Payable ....... with information about major reconciling items.......... Unauthorized copying. Ltd............ .. and the amount of unused income tax credits and losses carried forward...000 Income tax expense 89. Weygandt. Warfield.. 89. 3. 89.. (e) Henry is providing all of the necessary and relevant disclosure as mentioned in (d) above... McConomy Intermediate Accounting. income tax expense or benefit included in determining income (loss) before discontinued operations.. Young..475 (b) Income before income tax $302... or transmission of this page is strictly prohibited. the amount of reserves to be included in taxable income in each of the next five years.... Creditors can therefore interpret the effect of adopting the taxes payable or different method of accounting for the income tax accounts....... and the amount related to transactions recognized in equity... Eleventh Canadian Edition EXERCISE 18-32 (15-20 minutes) (a) Current Tax Expense .. Wiecek. Creditors will also understand Henry’s motivation in adopting this method.. distribution.525 (c) Current liabilities: Income tax payable $89.....475 (d) Additional disclosures would include a statement that the taxes payable method is being used and a brief description of what it entails. The benefits of the alternative method are likely exceeded by unnecessary and possibly excessive costs of providing the additional information.....475 Net income $212. 2. Solutions Manual 18-95 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. ..... distribution.000 Reversing differences: Excess of CCA over depreciation (16...Kieso..000 120...600 (d) Current assets Income tax receivable $3..400 (c) Income before income tax $105......... Unauthorized copying.000 Income tax expense 38......400 (b) Current Tax Expense .000 Permanent differences: Non-deductible fines 15... or transmission of this page is strictly prohibited.. . 38. Warfield.400 Income Tax Payable .....000 Current income taxes – 30% $38..... Weygandt.400) Solutions Manual 18-96 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.... Wiecek........... Ltd.000 Taxable income $128..000 – $38....400 Net income $66. Young. 38.. Eleventh Canadian Edition EXERCISE 18-33 (10-15 minutes) (a) Accounting income $105......000) Excess rent collected over rent earned 24.. McConomy Intermediate Accounting.....600 ($42...... 6%) Adjustment for reversing differences = ($25... Ltd..000 Income tax expense @ 30% $51....000 Less: CCA in excess of depreciation (25....Kieso..5% Adjustment for permanent differences = ($10...........000 (1....000 x 30%)/$185.. Unauthorized copying.000 27. Weygandt.... distribution.......... Eleventh Canadian Edition EXERCISE 18-34 (15-20 minutes) (a) Accounting income before adjustments $185..000 Current Tax Expense .......000/$185.000 Income Tax Payable ..000) Taxable income $170. 51. ...1% Statutory Tax Rate 30.... Young. Warfield..... Wiecek..0% Solutions Manual 18-97 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.... 51.000 (b) Effective Tax Rate = $51..000 4....000 x 30%)/$185... or transmission of this page is strictly prohibited. McConomy Intermediate Accounting......000 Add: 50% meals and entertainment 10. the reconciliation of the effective tax rate is required. The student is required to calculate and classify deferred taxes. The income statement disclosure is also required for one year. Student must deal with three years and two tax rates and is required to draft the income statement for the year as well as arrive at statement of financial position amounts with appropriate classifications. The student in this case is dealing with a single tax rate and opening balances to the deferred tax accounts related to a single temporary difference. A single tax rate applies. . distribution. Problem 18-2 (Time 45-50 minutes) Purpose—to test a student’s ability to calculate and classify future taxes for five temporary differences. Eleventh Canadian Edition TIME AND PURPOSE OF PROBLEMS Problem 18-1 (Time 30-35 minutes) Purpose—to test a student’s ability to differentiate between permanent and temporary differences. (3) the amount of originating or reversing temporary difference must be calculated each year in order to determine the cumulative temporary difference at the end of each year.Kieso. and (4) there is a permanent difference along with a temporary difference each year. Problem 18-4 (Time 50-60 minutes) Purpose—to provide the student with a situation where: (1) a temporary difference originates over a three-year period and begins to reverse in the fourth period. Problem 18-3 (Time 50-60 minutes) Purpose—to provide the student with an understanding of how to calculate and properly classify deferred taxes when there are four types of temporary differences. Unauthorized copying. Solutions Manual 18-98 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Reconciliations of reversing differences and the resulting deferred tax accounts must be prepared in order to provide proper comparative statement of financial position disclosures. or transmission of this page is strictly prohibited. Journal entries are required for the first year in one instance and then for each of four years. while dealing with an opening balance in the deferred tax asset account. Also. the student must use data given to solve for both taxable income and pre-tax accounting income. calculate and classify and record current and deferred taxes as well as prepare a partial income statement and statement of financial position. including the entry for the adjustment of deferred taxes due to the change in the enacted tax rate. Ltd. Weygandt. Warfield. (2) a change in an enacted tax rate occurs first in a year prior to the year in which the amount of the cumulative temporary difference originates and then second in a year in which there is a change in the amount of cumulative temporary difference. Finally. McConomy Intermediate Accounting. Wiecek. Young. one temporary difference. income statement and statement of financial position amounts are also a requirement in this challenging problem. or transmission of this page is strictly prohibited. and one permanent difference. Problem 18-8 (Time 50-60 minutes) Purpose—to provide the student with the opportunity to deal with several reversing differences reversing over a two-year period with several tax rates involved. McConomy Intermediate Accounting. Ltd. The activity of some statement of financial position accounts over the two-year period provide the necessary detail to trace the reversing timing differences. An income statement and statement of financial position presentation is also required along with earnings per share disclosure. The student must calculate all amounts related to income taxes for the current year and prepare the journal entry to record them. In order to determine the beginning balance in a deferred tax account. Discontinued operations are also dealt with in this problem. to develop an understanding of how reversing timing differences affect the calculation of deferred tax assets and liabilities when there are multiple tax rates enacted for the various periods affected by existing temporary differences. The student is given information about pre-tax accounting income. the student must calculate deferred taxes for the prior year’s statement of financial position. Also. Reporting of comparative balances on the statement of income and statement of financial position at the end each of the two years must also be Solutions Manual 18-99 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Problem 18-6 (Time 50-60 minutes) Purpose—to provide the student with the opportunity to reconcile timing differences reversing over a two-year period stemming from several sources. Young. Wiecek. but using a consistent tax rate. Eleventh Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) Problem 18-5 (Time 40-45 minutes) Purpose—to provide the student with an understanding of how future temporary differences for existing depreciable assets are considered in determining the future years in which existing temporary differences result in taxable or deductible amounts.Kieso. . Unauthorized copying. The production of entries. Problem 18-7 (Time 40-45 minutes) Purpose—to develop an understanding of the concept of future taxable amounts and future deductible amounts. Weygandt. distribution. Warfield. Different assumptions as to the likeliness of realization of deferred tax assets accrued from future deductible amounts are used and lead to a variety of entries and financial statement balances to be reported for two years. Ltd. Solutions Manual 18-100 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young. distribution. Weygandt. Warfield. McConomy Intermediate Accounting. Eleventh Canadian Edition provided. Wiecek. A good understanding of the accounting and tax treatment is required to handle this challenging problem. Unauthorized copying. .Kieso. or transmission of this page is strictly prohibited. record and classify deferred taxes for three reversing differences and three permanent differences and to draft the income statement and a statement of retained earnings for the year. Income statement presentations are required for the loss year where the benefits of the carryback and the carryforward are recognized and the year following the loss year where the benefits of the carryforward are realized and for the case where the loss carryforward is not expected. Two situations are given and the student is required to calculate. The student is required to calculate and classify deferred taxes for two successive years. Eleventh Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) Problem 18-9 (Time 25-30 minutes) Purpose—to provide the student with an understanding of how the calculation and classification of deferred taxes are affected by the individual future year(s) in which future taxable and deductible amounts are scheduled to occur because of existing temporary differences. Problem 18-11 (Time 50-60 minutes) Purpose—to test a student’s ability to calculate. The journal entry to record income taxes is also required for each year. McConomy Intermediate Accounting. record and classify the deferred taxes for each. The benefits of the loss carryforward are realized in the year following the loss year in one case and unexpected in another. Unauthorized copying. Ltd. Wiecek. Journal entries for the loss year and two subsequent years are required. . Weygandt. or transmission of this page is strictly prohibited.Kieso. Young. A draft of the income tax expense section of the income statement is also required for each year. A net deferred tax asset results in both cases. distribution. Problem 18-10 (Time 40-50 minutes) Purpose—to test a student’s understanding of the relationships that exist in the subject area of accounting for income taxes. An interesting twist to this problem is that the student must calculate taxable income for two individual periods based on facts about the tax rate and amount of taxes paid for each period and then combine that information with data on temporary differences to calculate pre-tax accounting income. Warfield. Solutions Manual 18-101 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. This problem also requires the reconciliation of the effective tax rate. Problem 18-12 (Time 35-40 minutes) Purpose—to provide the student with a situation involving an actual net operating loss which can be partially offset by prior taxes paid using the carryback provision. Wiecek. . Young. McConomy Intermediate Accounting. Fair value accounting for investment properties and the revaluation method are included in this discussion. Warfield. and a loss carryforward that cannot be recognized in its entirety. Problem 18-16 (Time 20-55 minutes) Purpose—to provide the student with three situations and require the discussion of any impact accounting policy choices for two situations and changing tax rates in one situation will have on deferred tax balances. The student must also prepare the journal entry for the error. The student must deal with 2 years of information. The problem also includes reversing (CCA vs depreciation and allowance for doubtful accounts) and permanent differences (income tax penalties and interest. and golf club dues). Weygandt. Students are asked to prepare entries and the income tax rate reconciliation note. Problem 18-15 (Time 60-75 minutes) Purpose—To provide the students with a challenging problem that requires them to think through a number of issues: loss carryback in a situation where the company’s accounting income and taxable income has differences due to timing and permanent differences. Also required is tax section of income statement and comparative statements of financial position for 2 years. or transmission of this page is strictly prohibited. Eleventh Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) Problem 18-13 (Time 35-40 minutes) Purpose—To challenge the student to deal with an error in a prior period in a company following ASPE and using the future/deferred income taxes method of accounting.Kieso. calculate income tax expense and payable for 2 years and journalize all tax entries for 2 years. Ltd. Solutions Manual 18-102 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. distribution. a change in tax rate. Problem 18-14 (Time 50-60 minutes) Purpose—To introduce the student to accounting for commercial real estate leases and deal with the reversing differences (prepaid rent and rent payable) as well as permanent differences (golf club dues and interest expense incurred to earn income not subject to tax). The student must consider refiling the prior year tax return as a result of the error and complete the statement of retained earnings with the after tax impact of the error shown. The question emphasizes the few differences between the deferred approach to income taxes under both ASPE and IFRS. 000 – ($900.000) ($15.720 46.000 375. Unauthorized copying. 31. distribution. 31.000 – $150. Weygandt. or transmission of this page is strictly prohibited.2018: (Taxable) C-B (A) CCA (B) A–B C Carrying Temporary Reversing Year Base Rate CCA UCC Deprec. Dec. Amounts and Balances 2016 .000 **$900. 2016 ($825.776 67.000 = $648. .000 ($15.000) X tax rate = $4. Kieso. Dec.000 – $75. 2016 X tax rate = Future tax liability. Young.000* (27.320 2020 414.400 20% 103.000** 150.000 39.000 10% 90.056 Taxable temporary difference.000 $75.000 $825.000 106.000 648. Warfield.000) 2017 810. McConomy Intermediate Accounting.000 20% 162.400 150.000 – $810.000) 2018 648.000 525.720 150.000) (12.720 20% 82.000 = $675. Amount Difference Difference 2016 $900.000 20% 129.000 675.600) 20.000 (6. Wiecek.600 518.776 150.944 331.000 225.400 2019 518. Eleventh Canadian Edition SOLUTIONS TO PROBLEMS PROBLEM 18-1 (a) Basic Calculations of Capital Cost Allowance.000 Solutions Manual 18-103 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 X 20% X 50%) – $162.000 $810. Ltd.680 414.500 Tax rate = 30% * $900. 2017 Base Amount Differences below) (Liability) Term Property.100) LT Prepaid rent (2018 expense) -0.000) Deferred tax liability before adjustment (4.500) Solutions Manual 18-104 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.750) 30% (5. Ltd. plant.350 C Deferred tax liability. or transmission of this page is strictly prohibited.000) 30% ($8.750 (18. 2017 (18. Eleventh Canadian Edition PROBLEM 18-1 (CONTINUED) (a) (continued) Statement of Deductible Tax Deferred For (f)ASPE Financial Position (Taxable) Rate Tax Current Account Tax Carrying Temporary (see Asset or Long- Dec. distribution. 18. & equip. Young. $648.500) 4. Unauthorized copying. and deferred tax expense for 2017 ($13.500) Incr. Wiecek. December 31. 18. Kieso. Weygandt. (4.000** ($27. McConomy Intermediate Accounting.500 30% 1. Warfield.750) 30% (5. 31.750 (18. in deferred tax liability.625) LT Warranty liability -0. .625) C Prepaid rent (2019 expense) -0.000* $675. 13... Eleventh Canadian Edition PROBLEM 18-1 (CONTINUED) (b) Accounting income $60.. Young... Weygandt.000 X 50%) $6.....000 Capital cost allowance (162. 9....000 15.250) Rent expense 18..000 Deferred Tax Expense ...000 Income Tax Payable ..500 Net income $37.000 Golf club fees 9...000 Warranty payments (4.500 Deferred Tax Liability ....000) Rent paid (56....000) (12...... Warfield....000 Current income taxes – 30% $9.....000 (c) Current Tax Expense .........000 Deferred 13....500 Taxable income $30.........000 Reversing differences: Depreciation 150..500 Solutions Manual 18-105 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.........000 Permanent differences: 50% of meals expense ($12.....000 75.500 (d) Income before income tax $60. Ltd....... McConomy Intermediate Accounting..500 22...000 Income tax Current $9........750 (37.. Wiecek... ..Kieso....... or transmission of this page is strictly prohibited....500) 4.. distribution.... Unauthorized copying.........500) Warranty expense 9.. 9.. 13. 100) 13. December 31. or transmission of this page is strictly prohibited.725 + $4. Solutions Manual 18-106 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.275 below) $18.275 Non-current liabilities: Future tax liability ($5. Wiecek. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference.625 + $8. Ltd. (f) If Anthony reported under ASPE. McConomy Intermediate Accounting. Warfield.Kieso.350) $4. 2017 Current liabilities: Future tax liability: ($5. future tax assets and future tax liabilities are segregated into current and non-current categories. . distribution. the only difference would be in how any future tax asset or liability would be reported on the statement of financial position. Eleventh Canadian Edition PROBLEM 18-1 (CONTINUED) (e) Statement of financial position. Young. December 31. Unauthorized copying. Statement of financial position. Weygandt.000 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.725 Under ASPE. 2017 Non-current liabilities: Deferred tax liability ($13.625 – $1. Young.600 $ 2. depreciation ($90.000 $ 5.200) Future taxable amounts: LT 2018 2019 2020 Total Instalment accounts receivable ($36.080) ($10. Weygandt.000) Tax rate enacted for the year 28% 28% Deferred tax liability ($10.000) ($50.000) ($14.960) Solutions Manual 18-107 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.480) ($54.480) ($18.000) ($36.000) ($18.000) Tax rate enacted for the year 30% 28% 28% Deferred tax liability ($27. Warfield.080) ($20. Wiecek. Ltd.000) ($72. McConomy Intermediate Accounting.000) ($40. distribution. Kieso.000 $ 60.000) ($180.000 $ 10.000) ($11. Eleventh Canadian Edition PROBLEM 18-2 (a) For non-current deferred taxes: Deferred Tax Asset (Liability) Future taxable amounts: LT 2018 2019 2020 Total CCA vs.800 $ 17.400 Deferred tax liability – non-current ($18.000 Tax rate enacted for the year 30% 28% 28% Deferred tax asset $ 9.000 $ 20. or transmission of this page is strictly prohibited. .200) ($52.160) Future deductible amounts: LT 2018 2019 2020 Total Pension liability $ 30. Unauthorized copying. 800) Deferred tax asset – current $ 19. . Weygandt.000) Tax rate enacted for the year 30% Deferred tax liability $ (10.800 Future deductible amounts: C 2018 Various accrued expenses $ 24.200 Future taxable amounts: C 2018 Instalment accounts receivable $ (36.000 Tax rate enacted for the year 30% Deferred tax asset $ 7. Eleventh Canadian Edition PROBLEM 18-2 (CONTINUED) (a) (continued) For ‘current’ Future taxes: Deferred tax asset (liability)___ Future deductible amounts: C 2018 Unearned royalties $ 76. Warfield. Wiecek. Young. Unauthorized copying.000 Tax rate enacted for the year 30% Deferred tax asset $ 22. or transmission of this page is strictly prohibited. McConomy Intermediate Accounting.200 Solutions Manual 18-108 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Kieso. Ltd. distribution. .200 C Instal...000 30% 22...160) LT Pension liability -0.000 (36.... accounts receivable -0.. 65. 65.. 2017 Base Amount Differences Rate (Liability) Term PP&E (table above) * * ($180.. Warfield... Kieso.000) 24.000) 30% (10...... in deferred tax liability.000 Incr..000) Mixed (20..000 Mixed 17..($76. Wiecek.800 C Accrued liabilities -0.760) Deferred tax asset before adjustment 30.000) Mixed ($52... and deferred tax expense for 2017 ($65... accounts receivable -0.. or transmission of this page is strictly prohibited. Ltd.($24...... distribution..$72.....200) LT Instal....... 2017 (35..($60. . Weygandt....760 Solutions Manual 18-109 Chapter 18 Copyright © 2016 John Wiley & Sons Canada...400 LT Unearned royalties -0.000 30% 7.760 Deferred Tax Liability .760) * Amounts not given in the problem Deferred Tax Expense . Unauthorized copying.. December 31.000) 60.....000) 76..$36. Young.800) C Deferred tax liability. Eleventh Canadian Edition PROBLEM 18-2 (CONTINUED) (a) (continued) Statement of (Taxable) Deferred For (b) (ASPE) Financial Position Deductible Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec... 31.000 (72. McConomy Intermediate Accounting..... 960) ASPE require that all future tax assets and liabilities be reported as either current or non-current items on a classified statement of financial position. Ltd.200* Long-term liabilities Future tax liability $54.800 = $19. Warfield.000 tax due for 2017 ÷ 30% 2017 tax rate = $600.200 . Wiecek. Solutions Manual 18-110 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.200) ** (-$52.200 below) $35. 2017 Current assets Future tax asset $19. Eleventh Canadian Edition PROBLEM 18-2 (CONTINUED (a) (continued) Non-current liabilities: 2017 Deferred tax liability ($54.760 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.$10.$20. Weygandt.160 + $17.000 taxable income for 2017.800 + $7.960** *($22.200 . (c) $180.Kieso. Young. (b) Statement of financial position classification: Refer to last two columns in tables above and summaries. distribution. . McConomy Intermediate Accounting.960 – $19. Unauthorized copying.400 = ($54. or transmission of this page is strictly prohibited. 000) ($180.000 + $36.000 + $40.000) $60.000 + $36. 1. McConomy Intermediate Accounting. Eleventh Canadian Edition PROBLEM 18-2 (CONTINUED) (d) Accounting income for 2017: Assuming that the only differences between accounting income and taxable income relate to the reversing differences given.000 Total reversing differences.000 Less accumulated to Jan. Wiecek.000 + $20. distribution. 31.000 Solutions Manual 18-111 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 2017 (100.000) Instalment gross profit > taxable amount: ($36. or transmission of this page is strictly prohibited.000) Pension expense < pension contributions. Warfield.000)* Reversing difference in year: (40.000 deferred tax asset ÷ 30% tax rate = $100. Weygandt. Ltd.000) *Temporary deductible difference accumulated to January 1. the 2017 reversing differences are: CCA > depreciation ($90.000 + $10.000 + $50. 2017: $30.Kieso. 2017 ($30. Unauthorized copying.000) (108. Young. 2017 ($228. .000) Royalties received > royalty revenues 76. 2017: Accumulated to Dec.000 Expenses incurred > expenses paid 24. January 1. Warfield. accounting income: $600.000 Income tax expense Current $180. Young.000 (e) Income before income tax $828. McConomy Intermediate Accounting.000 + $228. Ltd.000 $20.760 – $600 = $65.000 @ 30% 9. and 28% for 2019. .800 29.240 *This can be further divided into the deferred taxes caused by a change in the rate of tax. January 1. 2018.760* 245. 2020: $40. Eleventh Canadian Edition PROBLEM 18-2 (CONTINUED) (d) (continued) Calculation of accounting income.000 @ 30% for 2017. 2017: Accounting income $ X Reversing differences (228.000 Therefore.000 $30.000 @ 28% 5.760 Net income $582.160 Solutions Manual 18-112 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 2017 $100.000 Deferred 65.600 $10.400 $ 600 Caused by changes in temporary differences: $65. 2017 $100. and those caused by changes in the temporary differences themselves: Caused by change in rate of tax: Deferred tax asset.000 @ 30% $12.000 @ 28% 2.000 @ 30% $30.000) Taxable income – see part (c) $ 600.000 Deferred tax asset.000 = $ 828. or transmission of this page is strictly prohibited. Unauthorized copying. Wiecek.Kieso. distribution. Weygandt. 2016 Base Amount Differences Rate (Liability) Term PP&E (table above) * * ($150. 2016 ($21. McConomy Intermediate Accounting.000 $60.500) LT Unearned Rent (table above) -0. ($20.375 $ 37. Wiecek. ($40. December 31. distribution. Eleventh Canadian Edition PROBLEM 18-3 (a) Excess CCA over Deprec.500 $ 37.000 $5.000 25% 10. Ltd. 31.375 $ 9.375 $ 9.375 $ 9.500 $ 150. or transmission of this page is strictly prohibited.000 $20.000 Tax rate enacted for the year 30% 25% 25% Deferred tax asset $6.000) 25% ($37.500 $ 37. .500 Unearned Rent 2017 2018 2019 Total Future deductible amounts $20.000 For (g) Statement of Deductible (ASPE) Financial Position (Taxable) Deferred Current Tax Account Tax Carrying Temporary Tax Asset or Long- Dec. Weygandt.000 $ 5.000 LT Deferred tax liability.000 $20.500 $ 37. Kieso. Unauthorized copying.000 Tax rate enacted for the year 25% 25% 25% 25% Deferred tax liability $ 9.000 30% 6.000 $16.000) 20.000) 40.000 C Unearned Rent (table above) -0. Warfield.500) *Amounts not given in the problem Solutions Manual 18-113 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 2018 2019 2020 2021 Total Future taxable amounts $ 37. Young. 000 $22. .000 $ 17. 2017 $272.000 Accumulated Depreciation of disposed equipment (37. Dec.000 Solutions Manual 18-114 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young.000 Tax rate enacted for the year 25% 25% Deferred tax asset $5. Wiecek. distribution.000 $ 272. Warfield.000 $40.000 Excess of carrying amount over tax base. or transmission of this page is strictly prohibited.000 $ 68.000 $ 5.000 $10. 2017 100. Ltd.000 Reduction in CCA pool (UCC) for proceeds 90. Eleventh Canadian Edition PROBLEM 18-3 (CONTINUED) (b) Calculation of effect of disposal of equipment on temporary differences: Original cost of disposed equipment $ 105. Kieso.000 Tax rate enacted for the year 25% 25% 25% 25% Deferred tax liability $ 17. Weygandt. McConomy Intermediate Accounting. Unauthorized copying. January 1.000 $ 20. equipment 2018 2019 2020 2021 Total Future taxable amounts $ 68.000 $ 68.000 $ 68.000 $ 68.000 $ 17.000 Excess of carrying amount over tax base.000 CCA > depreciation.000 Unearned Rent 2018 2019 Total Future deductible amounts $20.000 $ 17.000) Reduction in carrying amount of equipment 68. 2017 150.31.000 Carrying amount > tax base.000 Reversing difference in 2017 22. 000 25% 5.000 – op.000 25% 18....250) Deferred tax liability before adjustment (21... Warfield. distribution... 17...... .... Unauthorized copying.. $37........500) * Alternately – net the two Deferred Tax Asset/Liability ... 30. and deferred tax expense for 2017 ($17. Young.000 25% 5....750 LT Deferred tax liability.... bal... in deferred tax liability.. 2017 (39.000) 20.500* ($68... Wiecek.... Ltd...000 – op.750 + $5..... or transmission of this page is strictly prohibited......... $16..750) *Amounts not given in the problem (c) Deferred Tax Expense .. Kieso..000 LT LT Investment * * 75.. Weygandt..000 C Unearned Rent (table above) -0...... 31...000) 25% ($68.........000) LT Unearned Rent (table above) -0..000 + $5.750 Deferred Tax Asset . 2017 Base Amount Differences Rate (Liability) Term PP&E (table above) * * ($272..750* ($18...($20......000) Deferred Tax Liability ......($20...... McConomy Intermediate Accounting...750 Solutions Manual 18-115 Chapter 18 Copyright © 2016 John Wiley & Sons Canada........ Eleventh Canadian Edition PROBLEM 18-3 (CONTINUED) (b) (continued) For (g) Statement of (Taxable) Deferred (ASPE) Financial Position Deductible Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec.. bal. 17.........500) Incr.. December 31... 12.000) 20... 000) Late interest penalties on tax instalments 2.000 – $40..164 Current Tax Expense ..... Wiecek...880 (12... 166.... distribution..000 Excess of rent revenue over cash received ($60. Unauthorized copying... McConomy Intermediate Accounting. or transmission of this page is strictly prohibited.....880 Current income taxes at 30% current rate $166... Ltd.000) CCA > Depreciation (100....120) 620. Kieso...... Young..000) Impairment loss on investments 75.... ...000) (20.... Weygandt...... Warfield...880 Reversing differences: Gain on disposal of equipment (22.....164 Income Tax Payable ....000) Taxable income $553....000 Permanent differences: Dividends received that are not taxable ($15...164 Solutions Manual 18-116 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. 166.. Eleventh Canadian Edition PROBLEM 18-3 (CONTINUED) (c) (continued) Accounting income $633..... McConomy Intermediate Accounting.900 30. Solutions Manual 18-117 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young.4)% $183.100) $75. Warfield.000 – $150.880 864 0.0% Effective tax rate ($183.000 $189.914 Net income $449.086 (f) ÷ Account- @ 30% ing Income Accounting income $633.350) (0.0% Non-taxable dividends (15. distribution.914 29.4% Net taxable temporary differences taxed at lower 25% rate: ($272. (e) Income statement presentation: Income before income tax $633. Ltd. Wiecek.164 Deferred tax 17.750 (2.7)% Non-deductible penalties 2. Weygandt.000) 29.000) X 5% = ($6. Unauthorized copying.Kieso.250 21.000) (4. .914 / $633.750 183. or transmission of this page is strictly prohibited.1% $186.500 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.500) (0.000 X 5% = 3.000 Income tax Current tax $ 166. Eleventh Canadian Edition PROBLEM 18-3 (CONTINUED) (d) Statement of financial position classification: 2017 2016 Long-term liabilities Deferred tax liability 39. and because of the deferment of taxes to the future at a 25% rate rather than the current rate of 30%.0% The effective tax rate differs from the statutory rate because there is no tax effect on the permanent differences.264 29. but none of the calculations would differ except for the classification of the deferred tax assets and liabilities in the statement of financial position. Eleventh Canadian Edition PROBLEM 18-3 (CONTINUED) (g) A company reporting under ASPE may use different terminology. Unauthorized copying. Warfield. Statement of financial position classification: (see tables in (a) and (b)) 2017 2016 Current assets Future tax asset $5.250 27. . as explained below. or transmission of this page is strictly prohibited. future tax assets and future tax liabilities are segregated into current and non-current categories.000 Long-term liabilities Future tax liability 44. Solutions Manual 18-118 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 $6.500 Under ASPE. distribution. Young. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference. Wiecek.Kieso. Ltd. Weygandt. McConomy Intermediate Accounting. the amount of the reversing differences originating (reversing) each period and the resulting temporary difference at each year-end must be calculated: 2017 2018 2019 2020 Accounting income $ 460. McConomy Intermediate Accounting.800) ($348.000) ($492.000) (166.000) ($125.200 644.800) Solutions Manual 18-119 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 294. Unauthorized copying.200 (Taxable) temporary Difference – beginning of year ($ 0) ($201. Eleventh Canadian Edition PROBLEM 18-4 (a) Before deferred taxes can be calculated.260 $193.000) (125.000 Taxable income (given) 299. Wiecek.000 500.000 40.000 Permanent difference 40. Ltd.000 40.000 40.000) ($166.800) (Excess) CCA in year (201.800) $144.000) ($367. Warfield.000 460.000 430.000 Tax rate enacted for the year 25% 30% 30% 30% Current income tax (% X taxable income) $74.000 304.000 $ 460.000 Reversing difference for the year ($201.000 $ 390. .750 $88.000 $ 420. Young.000 500. Kieso.000) ($367.000) ($492.000 (Taxable) temporary Difference – end of year ($201.800) 144. or transmission of this page is strictly prohibited. Weygandt.200 $91. distribution. 000) 25% ($50..... December 31....750 Income Tax Payable .. 50........ Eleventh Canadian Edition PROBLEM 18-4 (CONTINUED) (a) and (b) 2017 Statement of Financial (ASPE) Position (Taxable) Deferred Current Account Tax Carrying Temporary Tax Tax or Long- Dec.250) Deferred tax liability before adjustment 0 Incr... plant.........250 Solutions Manual 18-120 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....... Wiecek.. 74.. Kieso...250) LT Deferred tax liability.........750 [(refer to table in part (a)] Deferred Tax Expense .... 31.. Warfield.....250 Deferred Tax Liability ....... in deferred tax liability. ........ Ltd.... Weygandt........... and deferred tax expense for 2017 ($50.. 2017 (50.. distribution........... Young..250) *Amounts not given in the problem 2017 Current Tax Expense ... 50... or transmission of this page is strictly prohibited....... & equip. 2017 Base* Amount* Differences Rate (Liability) Term Property..... McConomy Intermediate Accounting. 74.. ($201................... Unauthorized copying. ..100) Deferred tax liability before adjustment ($50..............050 Deferred Tax Liability .. & equip........ Warfield.. Eleventh Canadian Edition PROBLEM 18-4 (CONTINUED) (a) and (b) (continued) 2018 Statement of Financial (ASPE) Position (Taxable) Deferred Current Account Tax Carrying Temporary Tax Tax or Long- Dec...... distribution. Wiecek.800) *Amounts not given in the problem 2018 a Deferred Tax Expense .....250 + $10. in deferred tax liability............000) 30% ($110................ and deferred tax expense for 2018 ($49. 2018 Base* Amount* Differences Rate (Liability) Term Property............. McConomy Intermediate Accounting........ Unauthorized copying..... .....100) LT Deferred tax liability.... 2018 (110..... 88..050a) (60....200 Income Tax Payable ..... Kieso...... Ltd.... 49... plant....800 Deferred Tax Liability .........000 × (30% – 25%)] Current Tax Expense ... Weygandt............ or transmission of this page is strictly prohibited... 10..800 Solutions Manual 18-121 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.... 31....300) Incr. 10.050 [To record the adjustment for the increase in the enacted tax rate recorded when known: $201.......... 88... Young. December 31............... ($367.......200 [(refer to table in part (a)] Deferred Tax Expense ..... 49... ...... 37.........260 Income Tax Payable ... Kieso.. 91... distribution. Wiecek......840) LT Deferred tax liability. 31.740) *Amounts not given in the problem 2019 Current Tax Expense .. ($492... Young.. Unauthorized copying............ 91...260 [(refer to table in part (a)] Deferred Tax Expense .800) 30% ($147. McConomy Intermediate Accounting.. and deferred tax expense for 2019 ($37... or transmission of this page is strictly prohibited....100) Incr....... December 31.. 2019 (147.. in deferred tax liability... .... & equip...740 Solutions Manual 18-122 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. Eleventh Canadian Edition PROBLEM 18-4 (CONTINUED) (a) and (b) (continued) 2019 Statement of Financial (ASPE) Position (Taxable) Deferred Current Account Tax Carrying Temporary Tax Tax or Long- Dec... Warfield........ 37..... 2019 Base* Amount* Differences Rate (Liability) Term Property..... Ltd.... Weygandt.....740 Deferred Tax Liability .... plant....................840) Deferred tax liability before adjustment (110............... . Wiecek....... Unauthorized copying... plant...200 Income Tax Payable ...... & equip....... Kieso..... ...200 *Amounts not given in the problem 2020 Current Tax Expense ..200 [(refer to table in part (a)] Deferred Tax Liability ... 31........640) LT Deferred tax liability... Eleventh Canadian Edition PROBLEM 18-4 (CONTINUED) (a) and (b) (continued) 2020 Statement of Financial (ASPE) Position (Taxable) Deferred Current Account Tax Carrying Temporary Tax Tax or Long- Dec... Ltd. Warfield...... 43... 193... and deferred tax benefit for 2020 $43.... 2020 (104...... Young.. 193...... in deferred tax liability.640) Deferred tax liability before adjustment (147..... 2020 Base* Amount* Differences Rate (Liability) Term Property.. ($348.840) Decr........ or transmission of this page is strictly prohibited......... Weygandt................ McConomy Intermediate Accounting. distribution............. 43......200 Solutions Manual 18-123 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....800) 30% ($104.....200 Deferred Tax Benefit . December 31... Warfield.050) Solutions Manual 18-124 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Kieso. or transmission of this page is strictly prohibited.050 Net income $271. . distribution.000 Income tax expense Current $88.200 Deferred 59. McConomy Intermediate Accounting. Weygandt. Young. Wiecek.850* 148. Unauthorized copying. Eleventh Canadian Edition PROBLEM 18-4 (CONTINUED) (c) 2018 Income before income tax $420.800 + $10. Ltd.950 *($49. 000) LT Deferred tax liability.500) Solutions Manual 18-125 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 2017 Base Amount Differences Rate (Liability) Term Property. McConomy Intermediate Accounting. plant.000 125. 31.000 750. Wiecek. Kieso. distribution. $720.000 (55. and deferred tax expense for 2017 ($16. .000 720.000 $ 900.000 $125. Depreciation and Balances: C-B (A) (B) (A – B) (C) (A – C) Reversing Carrying Year Base CCA UCC Deprec.000 ($30. Unauthorized copying. December 31.000 $25. Young. Eleventh Canadian Edition PROBLEM 18-5 (a) Basic Calculations of Capital Cost Allowance.5 $100.000) 30% ($9.000 $875.000) (b) 2017 For (f) Statement of Financial Deferred (ASPE) Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec. Warfield. Weygandt.000 X 30%) 7. Ltd.000) Deferred tax asset before adjustment ($25.000 X 20 % X .000 2017 900. 2017 (9.500 Incr. or transmission of this page is strictly prohibited.000. & equip. in deferred tax liability.000 X 20 % 180. Amount Difference 2016 $1.000 $750. . Warfield.000 Income tax expense and payable @ 30 % $ 385. Young..... 385....98 Solutions Manual 18-126 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. ....... Wiecek....500 Deferred Tax Expense ..500 Deferred 16....285... distribution.500 Income Tax Payable.........500* * Alternately Deferred Tax Asset/Liability... 7..........[part (a)] 55............. Weygandt.500 Deferred Tax Liability .... 9.. McConomy Intermediate Accounting....000 Income tax expense Current $385... Ltd.....500 (d) Income before income tax $1...000 Earnings per share: Net Income $9... 385.. 16....Kieso...000 Net income $ 998...........400....000 Permanent difference – tax exempt interest (60...000 Taxable income on regular operations 1.... or transmission of this page is strictly prohibited.400..................... Unauthorized copying...000) 1.500 402...340.......000 Reversing difference .... 16...... Eleventh Canadian Edition PROBLEM 18-5 (CONTINUED) (b) (continued) Calculation of current income tax expense: Accounting income $ 1.000* Deferred Tax Asset ...........500 (c) Current Tax Expense ........................ the deferred tax liability would be included with non-current liabilities. Unauthorized copying. Ltd. Wiecek. or transmission of this page is strictly prohibited. Therefore. the statement of financial position disclosure would be the same under ASPE’s future/deferred income tax method as under IFRS since all temporary differences relate to differences between the tax base and carrying amount of property. Warfield.000 (f) The only difference. plant and equipment which are classified as non- current. 2017. aside from different terminology that might be used (future taxes instead of deferred taxes) would be in the classification of the deferred tax account(s) on the statement of financial position. In this case. Solutions Manual 18-127 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. . (See part (b)) Long-term liabilities Deferred tax liability $9. Weygandt. Young. distribution.Kieso. Eleventh Canadian Edition PROBLEM 18-5 (CONTINUED) (e) Net deferred tax liability at December 31. McConomy Intermediate Accounting. Dec.500) Liability For 2018 (163. $ -0. Wiecek.500) (180. distribution. 2017 806.000 1. 31.256. Dec.000) (175. 31.000) (20. 2018 $ 642.000 (68.000 (275. Unauthorized copying. 2018 $-0. Kieso.000) (17. 2016 $ 0 (199.550) Liability Accrued Deferred Restructuring Charges Tax Base Liability Difference Tax 30% Tax $ Bal.500 $199. Warfield.400) Liability For 2017 (192.850 Asset For 2017 0 131. Dec.000 20. 31.450) Bal. Ltd. 31.000) 68.500 4. 2016 $ 998. or transmission of this page is strictly prohibited. McConomy Intermediate Accounting.400) Bal.500 $59.000) $ (77.100) Bal. Dec. $ -0.500 (131. Dec.000 $ 1. Dec. Weygandt. $ -0- Solutions Manual 18-128 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) 16.000 $ (258. 31.000) (5.500 $ 901.500) (39.081.000) (82. 31. Eleventh Canadian Edition PROBLEM 18-6 (a) Carrying Deferred PP&E UCC Amount Difference Tax 30% Tax Bal.000 $ (258. Young. .500) $ (77.950 Bal. 2017 0 (68.400 Asset For 2018 0 68. 800) (14.360) Liability Solutions Manual 18-129 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.800 (46. Unauthorized copying.200) $ (9. .600 4.600) 15. Weygandt. 2017 -0. Warfield. or transmission of this page is strictly prohibited.680 Bal.200 $ (31. -0.040) Liability For 2018 -0. 31. 2018 -0. Young. 31. Dec. $46. -0- For 2017 (net increase) -0. distribution.040) Bal. McConomy Intermediate Accounting. Ltd. (15. 2016 $ -0.800 $ (46.800) $ (14. $31. $46. 31. Dec. Wiecek. Dec. Kieso. -0. Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (a) (continued) Carrying Deferred Profit on Property Sale Tax Base Amount Difference Tax 30% Tax Bal. Warfield. Weygandt.980 Discontinued operations: Accounting income $ 18.500) 857. Ltd.000 Non-taxable dividends (3.000 Permanent differences: Non-deductible life insurance 11.800 0 Current income taxes – 30% $ 5. Young. distribution. Kieso.450 496.000 11.640 $0 Solutions Manual 18-130 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.800) 15.750 532.250) (3.000) 16. McConomy Intermediate Accounting. or transmission of this page is strictly prohibited.800 $0 Permanent differences 0 0 Reversing differences 0 0 Taxable income 18.000 $525.500 Reversing differences: CCA & depreciation (17.500 Restructuring charges (131. .735 $148.000) Profit on property sale (46.600 Taxable income 662.500) (68. Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (b) Continuing operations: 2017 2018 Accounting income $850. Wiecek. Unauthorized copying.600 Current income taxes – 30% $198. December 31. 2016 ($17.550) Incr. 31/16.800 is expected to be realized in each of 2018. Weygandt. McConomy Intermediate Accounting.500 30% 59. (46.140) Future tax liability before adjustment (17. Kieso. 46.680 a current amount. 2016 Base Amount Differences Rate (Liability) Term PP&E $998. (68.400 C Deferred G/P on Sale (A/R) -0.000) 68.000 ($258.400) LT Restructuring Liability -0.000 $1.000 $1.000 ($275.360 a long-term amount at Dec.256. Wiecek. Young.040) mixed** Future tax liability. making 30% of (1/3 X $46. . Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (a) and (c) Statement of Financial Deductible Future For (f)(ASPE) Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec.800) = $9. or transmission of this page is strictly prohibited.000 30% 20.500) 199. December 31. Statement of Financial Deductible Future For (f)(ASPE) Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec.590) ** 1/3 of the remaining G/P of $46. in deferred tax liability. and 30% of (2/3 X $46.850 C* Future tax liability. 2017 Base Amount Differences Rate (Liability) Term PP&E $806.000) 30% ($82. 31. and 2020. 31.000) 30% ($77. 2019.550) *At Dec.081.800.800) = $4. distribution. Unauthorized copying. Solutions Manual 18-131 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.800) 30% (14. Warfield. and deferred tax expense for 2017 $(58. 2017 (76. Ltd.500) LT Restructuring Liability -0. the total liability was expected to be current. 31/17. (199. Unauthorized copying. 30% -0. Weygandt.360) mixed* Deferred tax liability.200) 30% (9. 2018 Base Amount Differences Rate (Liability) Term PP&E $642.680 a current amount.000 ($258.910) Deferred tax liability before adjustment (76. . Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (a) and (c) (continued) Statement of Financial Deductible Deferred For (f) (ASPE) Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec. 31. and deferred tax expense for 2018 ($10.550) LT Restructuring Liability -0. C Deferred G/P on Sale (A/R) -0. -0. distribution. 2018 (86. December 31. Ltd.680 a long-term amount at Dec.500 $901.500) 30% ($77.140) Incr.200 (31. Kieso. Warfield. McConomy Intermediate Accounting. Wiecek. Solutions Manual 18-132 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.200) = $4. -0. making 30% of (1/2 X $31. in deferred tax liability. Young. or transmission of this page is strictly prohibited. and 30% of (1/2 X $31.200 is expected to be realized in each of 2019 and 2020. 31/18.200) = $4.770) * 1/2 of the remaining G/P of $31. 31. ..... 5... . 204........ 148......590 Deferred Tax Liability .980 Deferred Tax Expense ......... 2018 Current Tax Expense .... Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (c) December 31................... distribution.... 2017 Current Tax Expense .......400) $76.............375 Deferred Tax Expense . or transmission of this page is strictly prohibited..360) $86.... 198...30) ................ Young.........770 Deferred Tax Liability ...............770 (d) Balance sheet 2017 Non-current liabilities: Deferred tax liability ($82..140 Balance sheet 2018 Non-current liabilities: Deferred tax liability ($77........ McConomy Intermediate Accounting..Kieso...........550 + $9.................... Solutions Manual 18-133 Chapter 18 Copyright © 2016 John Wiley & Sons Canada......... Weygandt...................590 December 31......500 + $14........... Wiecek..........640 Income Tax Payable ..... Unauthorized copying......735 Current Tax Expense – Discontinued Operations ........................ Ltd.. 148..980 Income Tax Payable ($495... 10............910 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position...040 – $20..................... 10. Warfield..... 58........350 X ........... 58............. 735 Deferred tax 58. Weygandt.750 Net income $365.000 Income tax Current tax $ 148. McConomy Intermediate Accounting.Kieso.325 Income from continuing operations 592. .000 Income tax Current tax $198.770 159.160 Net income $605.250 Solutions Manual 18-134 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. distribution. Ltd.835 Income Statement – 2018 Income before income tax $525.590 257. or transmission of this page is strictly prohibited. Wiecek. Young.800 Less applicable income tax 5.640 13. Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (e) Income Statement – 2017 Income from continuing operations before income tax $850.980 Deferred tax 10. Warfield.675 Discontinued operations Gain on disposal of operations 18. Balance sheet 2017 Current assets: Future tax asset ($20. distribution.360 + $82.680 + $77. Eleventh Canadian Edition PROBLEM 18-6 (CONTINUED) (f) None of the calculations would change. . The only difference would be the classification of the deferred accounts on the statement of financial position. Weygandt. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference. Ltd.860 Balance sheet 2018 Current liability: Future tax liability $4.500) 91. future tax assets and future tax liabilities are segregated into current and non-current categories.680) $15. although different terminology might be used (deferred taxes instead of future taxes). Wiecek.680 Non-current liabilities: Future tax liability ($4. Unauthorized copying.550) 82.Kieso.400 – $4.230 Under ASPE. McConomy Intermediate Accounting. Solutions Manual 18-135 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. or transmission of this page is strictly prohibited.720 Non-current liabilities: Future tax liability ($9. Warfield. Young. .. Young.. 15........ . Current Tax Expense .. Future deductible amounts decrease future taxable income relative to pre-tax accounting income due to existing deductible temporary differences. Warfield. or transmission of this page is strictly prohibited.... Wiecek...000 Income Tax Payable . Weygandt........... Ltd.....000 taxable income X 30%) Solutions Manual 18-136 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....Kieso.. Eleventh Canadian Edition PROBLEM 18-7 (a) Future taxable amounts increase future taxable income relative to pre-tax accounting income due to existing taxable temporary differences. A deferred tax liability should be recorded for the future income tax consequences attributable to the future taxable amounts scheduled and a deferred tax asset should be recorded for the future tax consequences attributable to the future deductible amounts scheduled...... (b) See next two pages for deferred taxes......000 ($50... distribution. 15... Unauthorized copying. McConomy Intermediate Accounting.............. 000) Tax rate enacted for the year 28% 26% 24% 24% Future tax (liability) ($21.000) ($76. .000) ($75. in future tax asset.000) 28% ($21. Unauthorized copying.000 Balance (Taxable) Future (ASPE) Sheet Deductible Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec. Eleventh Canadian Edition PROBLEM 18-7 (CONTINUED) (b) (continued) Mixed rates Deferred Taxes 2018 2019 2020 2021 Total Future taxable amounts ($75.000 $2.000 LT Future tax asset. Wiecek.500) LT Unknown* see table in (b) 0 0 2. McConomy Intermediate Accounting.000 – $576.500) ($18.000 24% 576. or transmission of this page is strictly prohibited. Warfield.000) Mixed (55. December 31.500 Solutions Manual 18-137 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Kieso.400. Young. 31.000) ($18.000) ($300.000 Tax rate enacted for the year 28% 26% 24% 24% Future tax asset – – $576. 2017 499. 2017 Base* Amount* Differences Rate (Liability) Term Unknown* see table in (b) 0 0 ($75.000) C(1) Unknown* see table in (b) 0 0 (225. Ltd.000) ($19.000) ($75.000) ($75.400. Weygandt. distribution.500) 2018 2019 2020 2021 Total Future deductible amounts $2.400.500 Future tax asset/liability before adjustment 0 Incr. and future tax benefit for 2017 $499. ........... Ltd... ....... An alternative approach would be to establish a deferred tax asset only for the portion of the future taxes estimated more likely than not to be realized.. Future Tax Asset ... McConomy Intermediate Accounting.........500 (c) I might be concerned that the company will not generate enough taxable income in the future from which to deduct the future deductible amounts..... their future deductibility would not qualify as having asset value.. or transmission of this page is strictly prohibited... Kieso... Young.. Wiecek... which will then ensure that the asset is reduced to the realizable value for financial statement reporting purposes........ It becomes a valuation account.......... 499..... Weygandt........ Unauthorized copying.. To the extent that the deferred tax asset will not be realized... Warfield..... an allowance to reduce the deferred tax asset account to the expected realizable value should be created.. Eleventh Canadian Edition PROBLEM 18-7 (CONTINUED) (b) (continued) *Not given in the problem (1) This assumes that either ¼ of the related balance sheet account is reported in a current classification on the balance sheet...... 576.. 76..........000* Future Tax Benefit.. 499................500 Future Tax Liability .... or there is no related balance sheet account reported.500* *Alternately Future Tax Asset/Liability....... If this were the case.... The use of the allowance account is optional. Solutions Manual 18-138 Chapter 18 Copyright © 2016 John Wiley & Sons Canada....... distribution........ . distribution... Ltd....000 Required balance in allowance $ 72........000 Allowance to Reduce Future Tax Asset to Expected Realizable Value ........000 = $408..000 X 24% = $480..000 ($2. Wiecek..000 $1....000 Allowance to Reduce Future Tax Asset to Expected Realizable Value . McConomy Intermediate Accounting......000 $2. Unauthorized copying....000 Future Tax Benefit .....000 Temporary difference – future deductible amount: Required balance (net above) $504. Weygandt.......500......000) (e) Future Taxes 2020 2021 Total Future deductible amounts $600...... Young..... 408.... Eleventh Canadian Edition PROBLEM 18-7 (CONTINUED) (d) Future Tax Expense ..... 480........000 $504..000 – $72......000..... 480.. .000 Tax rate enacted for the year 24% 24% Future tax asset (net) $144. 408........000) Solutions Manual 18-139 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. or transmission of this page is strictly prohibited.....000 ($480.100.000 Opening balance recorded in 2017 576....Kieso.... Warfield.000 $360..... in future tax asset. Young.000 $360. 2018 448. distribution.000) Tax rate enacted for the year 26% 24% 24% Future tax (liability) ($19. 2018 Base* Amount* Differences Rate (Liability) Term Unknown* see table above 0 0 ($75.500 Incr.000 $1.500) 2019 2020 2021 Total Future deductible amounts $600. or transmission of this page is strictly prohibited. Warfield.000) 19.000 $2.100.000 24% 504. Unauthorized copying.000) 24% (36.000 Tax rate enacted for the year 26% 24% 24% Future tax asset $144. December 31.000) ($75.000 Balance (Taxable) Future (ASPE) Sheet Deductible Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec. McConomy Intermediate Accounting.000) ($55.000) ($225.000 LT Future tax asset.500 – $480.000 * Not given in the problem Solutions Manual 18-140 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Weygandt.500 Future tax asset (net) before adjustment ($499.000) LT Unknown* see table above 0 0 2. Ltd.500) C Unknown* see table above 0 0 (150.000 $504. . 31. Wiecek. Kieso.500) ($18.500.100. Eleventh Canadian Edition PROBLEM 18-7 (CONTINUED) Future Taxes (f) 2018 mixed rates 2019 2020 2021 Total Future taxable amounts ($75. and future tax benefit (net) for 2018 $429.000) 26% ($19.000) ($75.000) ($18. Wiecek.000 1 Balance of Deferred Tax accounts December 31. . Warfield. Ltd.000 If the company did not use the allowance method.000) 504.500 21.000 Less: Allowance to reduce future tax asset to expected realizable value-part (d) (480.000 Less: Future tax liability – LT (36.5001 Current liabilities Future tax liability 19. 2018: Future tax asset – LT $576. Young. distribution.000) 96.500 2 Balance of Deferred Tax accounts December 31. Solutions Manual 18-141 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. McConomy Intermediate Accounting. 2017: Future tax asset – LT $ 576. 2018 2017 Non-current assets Future tax asset (net of allowance) $468.0002 $40. If no allowance is used. or transmission of this page is strictly prohibited.000 Less: Allowance to reduce future tax asset to expected realizable value-part (e) (72.000) Net deferred tax asset – non-current $468. only the realizable amount is recognized initially. the amounts reported for the future tax asset account would have been reported on the balance sheet as the same net amount as indicated above.000 Less: Future tax liability – LT (55.Kieso. Weygandt. Unauthorized copying. Eleventh Canadian Edition PROBLEM 18-7 (CONTINUED) (f) (continued) Balance sheet classification Refer to last two columns in tables in part (b) and (f) above.500) Net deferred tax asset – non-current $40. Ltd. IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. distribution. Solutions Manual 18-142 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.500 Note that strict application of IFRS would require that no allowance account be used. Weygandt. Instead. .000 2 See calculations in (f) above: $468. Young.Kieso. a deferred tax asset would be recognized only to the extent that it is probable that taxable income will be available against which the deductible temporary difference can be used. or transmission of this page is strictly prohibited.5001 1 See calculations in (f) above: $40. McConomy Intermediate Accounting. Eleventh Canadian Edition PROBLEM 18-7 (CONTINUED) (g) 2018 2017 Non-current assets Deferred tax asset $448. Unauthorized copying. Also. Wiecek.500 – $21.000 – $19. Warfield.5002 $19. 000 12.500) Mixed ($9. plant.150 C Pension Liability -0. 2016 $7. Ltd.800) 38.799 Solutions Manual 18-143 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 2016 Base Amount Differences Rate (Liability) Term Property.144 $ 11.500) 20. & equipment $67. Unauthorized copying. Eleventh Canadian Edition PROBLEM 18-8 (a) 2016 balances with mixed tax rates: Deferred Taxes Future taxable amounts: 2017 2018 2019 Total CCA vs.500) ($2.000 14. Warfield.(20.625) ($700) ($9.800 38.480 $ 4. or transmission of this page is strictly prohibited. Weygandt. December 31. McConomy Intermediate Accounting.600 $ 3.800 Tax rate enacted for the year 30% 29% 28% Deferred tax asset $ 3.500 $100. Young.250) ($3. .500) ($32.224 (1) LT Deferred tax asset.224 Statement of Deductible Deferred For (e) ASPE Financial Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec.(38. Wiecek.000 ($32.575) Future deductible amounts 2017 2018 2019 Total Pension liability 12.500) ($12. distribution.800 Mixed 11.500 30% 6. 31.575) (1) LT Warranty Liability -0. depreciation ($17.500) Tax rate enacted for the year 30% 29% 28% Deferred tax liability ($5. Kieso. Weygandt.800 26. distribution. Depreciation ($12. or transmission of this page is strictly prohibited.624 Solutions Manual 18-144 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield.480 $ 4. Ltd.150 + $11. Young. Eleventh Canadian Edition PROBLEM 18-8 (CONTINUED) (a) (continued) (1) from table above Statement of financial position classification: Non-current assets: Deferred tax asset $7.500) ($15.799 ($6.325) Future deductible amounts 2018 2019 Total Pension liability 12.000 14.144 $ 7.575) IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. Wiecek.500) ($2. (b) 2017 future taxes – mixed tax rates Deferred Taxes Future taxable amounts: 2018 2019 Total CCA vs. . Kieso.800 Tax rate enacted for the year 29% 28% Deferred tax asset $ 3.000) Tax rate enacted for the year 29% 28% Deferred tax liability ($3.625) ($700) ($4.224 – $9. McConomy Intermediate Accounting. Unauthorized copying. plant. December 31.800 Mixed 7. Kieso.325) (1) LT Warranty Liability -0.(23. Ltd.309 * not given in the problem (1) from table above Solutions Manual 18-145 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.799 Incr.480) 23. Young.624 (1) LT Deferred tax asset. Unauthorized copying.000) Mixed ($4. Weygandt. & equipment * * ($15. 31.800) 26.(26.480 29% 6. . McConomy Intermediate Accounting. distribution. in deferred tax asset. Wiecek.809 C Pension Liability -0. Eleventh Canadian Edition PROBLEM 18-8 (CONTINUED) (b) (continued) Statement of Deductible Deferred For (e) Financial Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec. or transmission of this page is strictly prohibited. Warfield. and deferred tax benefit for 2017 $2.108 Deferred tax asset before adjustment 7. 2017 10. 2017 Base Amount Differences Rate (Liability) Term Property. ..... Eleventh Canadian Edition PROBLEM 18-8 (CONTINUED) (c) Calculation of current tax expense 2017: Accounting income $ 119..000) (11.650 Permanent difference – dividends (5........190 Net income $ 77.......309) 42......460 Solutions Manual 18-146 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..Kieso.000) Depreciation > CCA 17.. Warfield.000 Tax Deductible Pension Payments (72.........499 *($21......980 Pension Expense Recognized 61.330 Current income taxes – 30% $44....309 Deferred Tax Benefit.. 2...500 Taxable income $148..... 44...200 +$6... Unauthorized copying...........500) Current Tax Expense ....800) Permanent difference – golf dues 25................................000 138. Weygandt. 44.....499 Deferred tax (benefit) (2................. ....850 Reversing differences Warranty Expense $30... 2...... or transmission of this page is strictly prohibited.500)* 2....480 Warranty Payments (21 (27......... Young..300 = $27.......... Wiecek.. Ltd.309 (d) Income statement presentation 2017: Income before income tax $119... distribution..499 Income Tax Payable .... McConomy Intermediate Accounting...499 Deferred Tax Asset ..650 Income tax Current tax $ 44.. distribution. Eleventh Canadian Edition PROBLEM 18-8 (CONTINUED) (d) (continued) Statement of financial position classification: Non-current assets: 2017 2016 Deferred tax asset $10.150 + $1. Weygandt.809 + $3.499 – (4 X $9. Young.Kieso.649 IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.299 2 $6. (e) From part (a) Statement of financial position classification: Current assets: Future tax asset $6. or transmission of this page is strictly prohibited. Unauthorized copying. .150 Non-current assets Future tax asset $1.499 not given [$44.500)] 1 $6. Wiecek.575) Solutions Manual 18-147 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Ltd.1081 $7. McConomy Intermediate Accounting.649 ($11. Warfield.224 – $9.7992 Current liabilities: Income tax payable $6. Young. Warfield.499 – (4 X $9. .499 not given [$44. or transmission of this page is strictly prohibited. In addition.299 $1.500)] Under ASPE. Solutions Manual 18-148 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.325) Current liabilities: Income tax payable $6. future income tax accounts instead of deferred tax accounts.624 – $4.649 ($7. Weygandt. Wiecek.809 $6. companies applying ASPE may use different terminology—that is. although none of the calculations would change (except for the classification described above). future tax assets and future tax liabilities are segregated into current and non-current categories.Kieso.150 Non-current assets: Future tax asset $3. Unauthorized copying. McConomy Intermediate Accounting. Ltd. distribution. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference. Eleventh Canadian Edition PROBLEM 18-8 (CONTINUED) (e) (continued) From part (d) Statement of financial position classification: Current assets: 2017 2016 Future tax asset $6. $1. Eleventh Canadian Edition PROBLEM 18-9 Part 1 (a) Mixed tax rates Alia Future Years 2018 2019 2020 2021 2022 Total Future taxable amounts ($600) ($600) ($600) ($400) ($200) ($2. . McConomy Intermediate Accounting. distribution. Warfield. Ltd. .400) Tax rate enacted for the year 25% 25% 25% 30% 30% Deferred tax (liability) ($150) ($150) ($150) ($120) ($60) ($630) Future Years 2018 2019 2020 2021 2022 Total Future deductible amounts $3. Wiecek. $1. Kieso.080 .600 $3. .080 Solutions Manual 18-149 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.600 Tax rate enacted for the year 25% 25% 25% 30% 30% Deferred tax asset . Young. Weygandt. Unauthorized copying. or transmission of this page is strictly prohibited. 400) Mixed ($630) Litigation liability 3. . Warfield. or transmission of this page is strictly prohibited. distribution.000) Increase in deferred tax asset. December 31. Kieso. & equipment ($2. Solutions Manual 18-150 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Weygandt. Eleventh Canadian Edition PROBLEM 18-9 (CONTINUED) Part 1 (continued) (a) (continued) Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec. Ltd.450 * not given in the problem Alia will report a Deferred Tax Asset of $450 in non-current assets on the statement of financial position.080 Deferred tax asset (net). plant. Wiecek. 2017 Base* Amount* Differences Rate (Liability) Property. and deferred tax benefit for 2017 $1. McConomy Intermediate Accounting.600 30% 1. Unauthorized copying. 31. 2017 450 Deferred tax liability before adjustment (1. Young. ....000 ($8.. Ltd..000 X 25%) Deferred Tax Liability ......000* Deferred Tax Asset ……………………………… ....450 *Alternately: one debit to Deferred Tax Asset/Liability for $1....... Unauthorized copying.. ................ McConomy Intermediate Accounting.000 Income Tax Payable........ or transmission of this page is strictly prohibited............ 2........ 450* Deferred Tax Benefit ....... Eleventh Canadian Edition PROBLEM 18-9 (CONTINUED) Part 1 (continued) (b) Current Tax Expense . 2.. 1.................................. Weygandt............... Warfield.... Wiecek...... 1.................. Young..450 Solutions Manual 18-151 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.... Kieso......... distribution..... Warfield. .000 Tax rate enacted for the year 25% 25% 25% 30% Deferred tax asset – – $1.000 $6. McConomy Intermediate Accounting. Wiecek. Young. Ltd. Eleventh Canadian Edition PROBLEM 18-9 (CONTINUED) Part 2 (a) Mixed tax rates Khoi Future years 2018 2019 2020 2021 Total Future taxable amounts ($800) ($800) ($800) ($800) ($3.200) Tax rate enacted for the year 25% 25% 25% 30% Deferred tax (liability) ($200) ($200) ($200) ($240) ($840) Future years 2018 2019 2020 2021 Total Future deductible amounts $6.500 Solutions Manual 18-152 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. or transmission of this page is strictly prohibited.500 – $1. Weygandt. distribution. Kieso. Unauthorized copying. ..... Eleventh Canadian Edition PROBLEM 18-9 (CONTINUED) Part 2 (continued) (a) (continued) Statement of Deductible Financial Position (Taxable) Deferred Tax Account Tax Carrying Temporary Tax Asset Dec..................200 Decrease in deferred tax asset. Ltd.......... plant. Warfield....... Wiecek. Kieso............... McConomy Intermediate Accounting..... 540 Deferred Tax Asset .. or transmission of this page is strictly prohibited...000 X 25%) Deferred Tax Expense ................... 2..........000 25% 1. Weygandt........ 31.. 2............. distribution......... & equipment ($3.... December 31..000 ($8........ .. and deferred tax expense for 2017 $540 *not given in the problem (b) Current Tax Expense ...500 Deferred tax asset... 2017 660 Deferred tax asset before adjustment 1. Unauthorized copying...... 540 Solutions Manual 18-153 Chapter 18 Copyright © 2016 John Wiley & Sons Canada......200) Mixed ($840) Litigation liability 6. 2017 Base* Amount* Differences Rate (Liability) Property..............000 Income Tax Payable... Young.. 2017 Non-current assets Deferred tax asset $450 Part 2 – All statement of financial position deferred tax accounts are presented as non-current. Statement of Financial Position (partial) December 31. plant and equipment and the litigation liability are non-current items. Weygandt.Kieso. 2017 Non-current assets Deferred tax asset $660 (d) Under ASPE. regardless of origin. Young. Statement of Financial Position (partial) December 31. Unauthorized copying. McConomy Intermediate Accounting. Eleventh Canadian Edition PROBLEM 18-9 (CONTINUED) (c) Part 1 – All statement of financial position deferred tax accounts are presented as non-current. Ltd. the property. or transmission of this page is strictly prohibited. In both cases. except for a possible use of different terminology (future taxes instead of deferred taxes). Wiecek. Therefore. . the classification is contingent on the balance sheet classification of the temporary difference underlying the future tax amount. Khoi Corp. so all the future tax accounts would also be presented as non-current. Solutions Manual 18-154 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. distribution. there would be no difference. Warfield. Alia Corp. regardless of origin. 2017 Base Amount Differences Rate Asset Term Property. Amount Difference 2017 $400.000 240.000 $30.000 LT Deferred tax asset.500) (b) 2017 (j) Statement of Financial (ASPE) Position Deductible Deferred Current Account Tax Carrying Temporary Tax Tax or Long- Dec. Warfield. plant. and deferred tax benefit for 2017 $9. Ltd.000 (7.5 $ 50.000 $320. distribution.000 Deferred tax account before adjustment 0 Incr.000 $ 350. in deferred tax asset. Kieso. McConomy Intermediate Accounting. 31.000 2018 350. . & equip.500 262.000 30% $9.000 $80.000 $30. Weygandt. December 31. 2017 9. Young. Wiecek. Depreciation and Balances: C–B (A) (B) A–B (C) Carrying Reversing Year Base CCA UCC Deprec. $350. Eleventh Canadian Edition PROBLEM 18-10 (a) Basic Calculations of Capital Cost Allowance.000 X 25 % X . or transmission of this page is strictly prohibited.000 Solutions Manual 18-155 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying.000 $320.000 X 25 % 87.500 80. ................000 Current Tax Expense ......... Unauthorized copying.000 a Pre-tax accounting income $ X Excess depreciation per books [from (a) above] 30....000 pre-tax accounting income.000 Net income $224............. 105........ X + $30... Young....... Warfield..000 Deferred Tax Benefit ... Weygandt... or transmission of this page is strictly prohibited... Wiecek..000 Taxable income [from (c) above] $350.... McConomy Intermediate Accounting.Kieso. 105........... ...000 Deferred (benefit) (9.000a Income tax expense Current $105.........000) 96....... Eleventh Canadian Edition PROBLEM 18-10 (CONTINUED) (c) Deferred Tax Asset . Solutions Manual 18-156 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 tax due for 2017 ÷ 30% (2017 tax rate) = $350.000 = $350..............000 (amount given in the problem) $105. (d) Income before income tax $320...... 9.000...000 Income Tax Payable . X = $320.......000 Solving for X.... 9. Ltd..000 taxable income for 2017..... distribution.... plant & equip..... 2018 51........000 unearned at end of 2018 divided by 2 years (2019 and 2020) (f) Deferred Tax Asset ......... 42. Ltd.000 30% 22...500 C Unearned Rev. Warfield.....500 LT Deferred tax asset.... Kieso...500 $240...... distribution..... and deferred tax benefit for 2018 $42.....000 Incr............ 42...000) 75..000 tax due for 2018 ÷ 30% (2017 tax rate) = $280....000 taxable income for 2018 Solutions Manual 18-157 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. – current -0-* (75.. 84......500 30% $6.750 *$150. McConomy Intermediate Accounting.. December 31. or transmission of this page is strictly prohibited.... -0-* (75.000 $22. Young.750 LT Unearned Rev. Weygandt.000 (amount given in the problem) $84. in deferred tax asset.... Unauthorized copying. Wiecek. – non-curr. $262.... 31....750 Current Tax Expense ........... 2018 Base Amount Differences Rate Asset Term Property.000 30% 22..... 84. Eleventh Canadian Edition PROBLEM 18-10 (CONTINUED) (e) 2018 (j) Statement of Financial (ASPE) Position Deductible Deferred Current Account Tax Carrying Temporary Tax Tax or Long- Dec....000) 75.........750 Deferred Tax Benefit ..750 Deferred tax asset before adjustment 9.. ..........000 Income Tax Payable .............. (h) Refer to last column in tables of part (a) and (e) above.000 Deferred (benefit) (42.750) IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.Kieso. Young.500d Income tax expense Current $84.000 – $7.750 $9.500 = $280.250 d Pre-tax accounting income $ X CCA in excess of depreciation [from (a) above] (7. .500 pre-tax accounting income.750) 41. Weygandt. Ltd. Unauthorized copying.500 + $6. Eleventh Canadian Edition PROBLEM 18-10 (CONTINUED) (g) Income before income tax $137.500) Excess rent collected over rent earned 150. McConomy Intermediate Accounting. Solutions Manual 18-158 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.500 + $22. 2018 2017 Non-current assets Deferred tax asset $51.000 Taxable income [from (f) above] $280. Warfield.250 Net income $ 96. Wiecek.000 Solving for X: X + $150. distribution.000 ($22.000 X = $137. or transmission of this page is strictly prohibited. 250* $9. . there is a possibility of having more than one account for deferred taxes reported on a statement of financial position (one for each legal entity). Ltd. the possibility exists that deferred tax accounts on the individual statements of financial position could be related to taxes from different jurisdictions. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference. Unauthorized copying. Since there is no right to offset taxes between jurisdictions. Warfield. Solutions Manual 18-159 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. McConomy Intermediate Accounting. Young. Under ASPE.500 Non-current assets Future tax asset 29. (j) Refer to last column in tables of part (a) and (e) above. future tax assets and future tax liabilities are segregated into current and non-current categories.500 + $6. 2018 2017 Current assets Future tax asset $22. Eleventh Canadian Edition PROBLEM 18-10 (CONTINUED) (i) When financial statements of several legal entities are consolidated into one for financial reporting purposes.000 *($22.Kieso. Wiecek.750) Under ASPE. there could also be one current and one long term deferred tax asset/liability account for each legal entity. distribution. or transmission of this page is strictly prohibited. Weygandt. & equipment 220.000 + Gross profit $30.000 30% $900 C Construction in process 270.000 240.750) Solutions Manual 18-160 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.500** 30% 10. or transmission of this page is strictly prohibited. distribution. 2017 Base Amount Differences Rate (Liability) Term Warranty liability -0. Unauthorized copying. in deferred tax liability.000* 300. (3.350 Increase in liability and deferred tax expense ($ 3.750) Deferred tax liability before adjustment 0 Incr.000 (20. Kieso. .000 (30. 31.000 X 75% Total deferred tax liability—2017 ($15. Young. Wiecek. McConomy Intermediate Accounting. Eleventh Canadian Edition PROBLEM 18-11 (a) for (h) Statement of Deductible Deferred (ASPE) Financial Position (Taxable) Tax Current Account Tax Carrying Temporary Tax Asset or Long- Dec. Weygandt.000) Deferred tax benefit—$10. Warfield.000) LT Land not given not given 34. 2017 (3.750) *(Construction costs $270. Ltd. December 31.000) **$46.350 LT Deferred tax liability.000) 30% (9.000) C Property.350 10. plant.000) $3. and deferred tax expense for 2017 ($3.000) 30% (6. 500 3. Young.700) $58. plant.000) 3.500 _______ 34.820 Solutions Manual 18-161 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. distribution.000 – $12.700) $59.000) (20.500 Non-deductible loss in land value $46. Ltd.000 3. Unauthorized copying.000 Property. Eleventh Canadian Edition PROBLEM 18-11 (CONTINUED) (b) Net Retained income Earnings Total Accounting income $64. Wiecek.000) (20.500 11. Weygandt.710) $17.400 Current income taxes at 30% $19.500 Reversing differences: Warranties: excess of expense over claims paid ($15.000) Construction in Process: Excess of reported construction profit over completed contract method ($30.530 ($1.000) Loss on land not deductible until future years 34. Warfield. McConomy Intermediate Accounting.100 ($5.500 Taxable income $65. and equipment: excess of CCA over depreciation expense ($80.000 – $60. .300 Permanent difference: Non-taxable dividends (1. or transmission of this page is strictly prohibited.000 – $0) (30.400) Non-deductible fines 3.000 ($5.400) (1. Kieso.000) (30.000 X 25% 11. . if a company kept a separate deferred tax account for each temporary difference: Deferred Tax Expense ...... 3........ 10............530 Income Tax Payable .......I.....750 Deferred Tax Liability . Warfield......... Young.......... .......820 Retained Earnings (tax effect) .....530 Deferred tax 3............... 19..280 Net income $40....... Unauthorized copying..... Weygandt.....).....750* *Alternately......350 Deferred Tax Liability (C....... or transmission of this page is strictly prohibited...000 Deferred Tax Liability (PP&E) ......750 23..........000 Income tax Current tax $19... 9....... 3........................000 (d) Income statement presentation: Income before income tax $64..........710 Deferred Tax Expense ......................... 6.. 3................. Wiecek.. ........... 900 Deferred Tax Asset (Land writedown) ...... McConomy Intermediate Accounting...750 Deferred Tax Asset (Warranty) ......Kieso.............. 17.720 Solutions Manual 18-162 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.... Eleventh Canadian Edition PROBLEM 18-11 (CONTINUED) (c) Current Tax Expense........ distribution.................................. 1.................P. Ltd...... Young. Warfield. Wiecek. distribution.Kieso. Weygandt. Ltd. Unauthorized copying. 2017 $36. .700) Less applicable tax 1.100 – $4.710 (3.820 Non-current liabilities Deferred tax liability 3.990) Balance December 31.730 (f) Statement of Financial Position Current liabilities Income tax payable $17.750 ($8.350) IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. McConomy Intermediate Accounting.720 Less: Financing charge ($5. Eleventh Canadian Edition PROBLEM 18-11 (CONTINUED) (e) Statement of Retained Earnings Balance January 1. or transmission of this page is strictly prohibited. Solutions Manual 18-163 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 2017 -0- Add: Net income $40. 000 19. Unauthorized copying.000 – $900) 8. Ltd.000) 36.000) $4. Eleventh Canadian Edition PROBLEM 18-11 (CONTINUED) (g) Divided by Accounting @ 30% Income Accounting income $64.350 Current liabilities Income tax payable 17.500 1. or transmission of this page is strictly prohibited. The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference.100 Under ASPE. .0% Non-taxable dividends (1.7)% Non-deductible fines 3.500 3. future tax assets and future tax liabilities are segregated into current and non-current categories.050 1. Warfield.350 – $6.3% The effective tax rate differs from the statutory rate in this case because of the effect of the permanent differences of dividends.280 / $64. Solutions Manual 18-164 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.3% Effective tax rate ($23.Kieso.450 5. Weygandt. (h) Statement of Financial Position Refer to last two columns of table in (a).280 36. McConomy Intermediate Accounting. Wiecek.400) (420) (0.6% Non-deductible land writedown 11.200 30. distribution. Young. Non-current assets Future tax asset ($10.4% 23. fines and 25% of the loss due to writedown of land.820 Future tax liability ($9. ....500 Income Tax Payable ($90.................................000 ($80....500 Income Tax Payable ...000 X 25%) Income Tax Receivable—2015 ..500 Solutions Manual 18-165 Chapter 18 Copyright © 2016 John Wiley & Sons Canada............... Wiecek. 13.............500 – $0) 2018 Current Tax Expense ........ 2017 Current Tax Expense .. Unauthorized copying........500 ($210.000 X 25%) ........ 13............ 22.........Kieso.... Ltd. 45............500 [($70... 13...... McConomy Intermediate Accounting....000 X 30% = $13......250 Note: An acceptable alternative is to record only one Income Tax Receivable account for the amount of $45.......000) ($45......................................000 X 30%) Current Tax Benefit..................... 7.000 X 25%) Income Tax Receivable—2014 ......000) X 30%] Future Tax Expense ...... Young.000 – $45.....500 Future Tax Benefit .... 7... 24...... Weygandt....... .....500 Future Tax Asset .........250..... distribution........500 ($13.................500) [Note: The solution assumes that Carly follows ASPE].... Eleventh Canadian Edition PROBLEM 18-12 (a) 2016 Income Tax Receivable—2013 .............................. Warfield.............. 6.............000 – $25...250 ($25..000 – $80.....000 ($60......000 – $60.... or transmission of this page is strictly prohibited.... 22... Future Tax Asset .......000 = $45...... 13.. 15.. (c) 2016 Income Statement Operating loss before income tax ($210.000 – $45.250) (d) 2017 Income Statement Income before income tax $70.000) X 30%] Solutions Manual 18-166 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.250 Future benefit due to loss carryforward 13. distribution. Wiecek.500 21. which means the benefits are expected to be realized in 2017.Kieso.500a Future 13. Also. If Carly Inc. Unauthorized copying. Eleventh Canadian Edition PROBLEM 18-12 (CONTINUED) (b) An income tax receivable account totalling $45.750 Net loss ($151.000 a [($70.500 58. This type of receivable is usually listed immediately above inventory in the current asset section. 2016.500) as a result of the entries to record the benefits of the loss carryback and the loss carryforward. or transmission of this page is strictly prohibited. Ltd.750 ($45. Young.500 should also be classified as a current asset because the benefits of the loss carryforward are expected to be realized in the year that immediately follows the loss year. Weygandt. A current future tax asset is usually listed at or near the end of the list of current assets on the balance sheet. This receivable is normally collectible within two months of filing the amendment to the tax returns reflecting the carryback. Under ASPE. a future tax asset of $13. McConomy Intermediate Accounting.250 will be reported under current assets on the statement of financial position at December 31.000) Income tax benefit Current benefit due to loss carryback $45. retained earnings is increased by $58. . the deferred tax asset related to the loss carryforward would be classified as a non-current asset on the statement of financial position.250 + $13. Warfield.000 Income tax expense Current $7. reports under IFRS.000 Net income $49. has a tax loss carryforward of $45.500 (f) 2016: entry for current taxes – no change 2016: if a valuation allowance is used.000 X 25%) Income Tax Receivable—2015 .......000 ($60....250.....000 X 30%) Current Tax Benefit. distribution.. 13.500 ($45.... 45....250 ($25....000 – $45...... as follows........ Unauthorized copying...............500 Future Tax Benefit .250 Note: An acceptable alternative is to record only one Income Tax Receivable account for the amount of $45.. 22............. 15..Kieso... 6......... the full income tax benefit and future tax asset related to the tax loss carryforward is recognized and then offset by the allowance................ Future Tax Asset .. 2017 Current Tax Expense .................500 Income Tax Payable ($90.000 X 30% = $13.......... 22.................. Wiecek..... Young................... or transmission of this page is strictly prohibited....000 ($80....500 Income Tax Payable ... 7............ Although its related possible income tax benefit is not recognized in the accounts.... 13... Ltd....... 7...........000) X 30%] 2018 Current Tax Expense ................. Carly Inc.... ............. 24.......... Weygandt..000 X 25%) Income Tax Receivable—2014 ................000 which is required to be disclosed...000 X 25%) ......... Warfield... Eleventh Canadian Edition PROBLEM 18-12 (CONTINUED) (e) 2016 Income Tax Receivable—2013 ...500 [($70....... McConomy Intermediate Accounting..........500) Solutions Manual 18-167 Chapter 18 Copyright © 2016 John Wiley & Sons Canada............. ..... Eleventh Canadian Edition PROBLEM 18-12 (CONTINUED) (f) (continued) Future Tax Expense ....... McConomy Intermediate Accounting. Wiecek.... Solutions Manual 18-168 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.. Future Tax Expense ..........500 Allowance to Reduce Future Tax Asset to Expected Realizable Value ....... 13. 13.500 2018: No change to part (e) entry.500 ($13........ one entry could have been made: Allowance to Reduce Future Tax Asset to Expected Realizable Value .. 13............ 13..500 Future Tax Asset .... as follows.500 Alternatively.. both the amount in the future tax account and in its allowance account must be removed........... ....500 Allowance to Reduce Future Tax Asset to Expected Realizable Value 13....... 13.............. Weygandt...... distribution..500 – $0) 2017: entry for current taxes – no change 2017: because the tax loss carryforward has now been used...... Unauthorized copying............500 Future Tax Benefit ............... 13......500 Future Tax Asset ........Kieso..... 13. or transmission of this page is strictly prohibited............................ Ltd. Warfield........ Young....... This facilitates tracking for management purposes. Readers can see the total possible benefits and the extent to which management has judged they will not be realized. Solutions Manual 18-169 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.Kieso. Ltd.000 – $45. or transmission of this page is strictly prohibited.250 Net loss ($164. McConomy Intermediate Accounting. Use of the allowance has no impact on cash flows. distribution. Eleventh Canadian Edition PROBLEM 18-12 (CONTINUED) (g) 2016 Income Statement Operating loss before income tax ($210.000 Income tax expense – Current a 7. It has no use for financial reporting purposes except. perhaps. Young.750) 2017 Income Statement Income before income tax $70.000) X 30%] (h) Using the valuation allowance instead of applying the reduction in value directly does not have any impact on cash flows.500 Net income $62. Warfield. The use of the contra allowance simply permits the recording of the full benefits associated with all future deductible amounts in the asset account. Wiecek. .500 a [($70.000) Income tax benefit Current benefit due to loss carryback 45. for the transparency of the information. Weygandt. Unauthorized copying. 500 Depreciation expense 365. McConomy Intermediate Accounting. Land 40.000 = $12. Unauthorized copying.000 Retained Earnings 40.000 Add: Golf club dues 4.000) Taxable Income $1. Young.000 Solutions Manual 18-170 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.645.000 x 30% = $40.000 To recognize additional income tax payable on the amount deducted in error in 2016. Warfield.000. . Wiecek.000 error in the expenses on the 2016 income statement and overstated by the income tax effect (30% of $40. or transmission of this page is strictly prohibited. (b) The prior period error has the following effect on the December 31. 2016.000 Retained Earnings 12.000.000 Excess of year’s bad debt expense over tax 20.Kieso.500. and the income tax payable account is understated by $12. distribution. (2016 tax return is amended) (c) Accounting Income $1.000).737.000 deductible amount Less: CCA (300. Eleventh Canadian Edition PROBLEM 18-13 (a) $135.000 Income Tax Payable 12. Ltd. deferred tax liability.500 Non deductible interest costs 2. Weygandt. December 31. 2016 statement of financial position: The land is understated by $40. retained earnings is understated by the $40. 500 *Carrying amount.600 Current tax expense 521. 2016 $1. 31.100 .000 $ (70.000 equipment – $365.500 = $495.003. 31. 2017 $ 25.500 (benefit) Total income tax expense = $521. Dec.000) 30% $ (21. Weygandt.000 2017 addition to class 16. distribution. .Kieso.000 Allowance not given not given 20.737.000 x 30% = $521.000) UCC. 2016 1.100 Income tax payable 521. 31.000 Less 2017 CCA (300.000* $1. and + $16. 2017 $ 933. Unauthorized copying. or transmission of this page is strictly prohibited.500 Solutions Manual 18-171 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.100 Deferred tax expense = $25.000 30% 6. Dec.000 for doubtful accounts Deferred tax liability. Wiecek.000) UCC. 31. 31.500) Adjustment required to deferred tax liability. 2016 ( 135. $933.352. Dec. Dec.217. 2017 $(15.000) Balance before adjustment (40. and deferred tax benefit.100 Deferred tax liability 25.$25.000 Future taxable amount. Ltd. Eleventh Canadian Edition PROBLEM 18-13 (CONTINUED) (c) (continued) Asset / Tax Base Carrying Deductible / Tax Deferred Liability Amount (Taxable) Rate Tax Temporary (Liability) Difference Asset Property. Young.500 Deferred tax benefit 25.000 Current tax expense = $1. Dec.000) plant.352. McConomy Intermediate Accounting.000 = $1. Warfield. January 1. Weygandt.400 Solutions Manual 18-172 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.678.000 Less: Income tax expense Current tax expense $521.600 Net Income $1. Ltd.500) 495. .000 Add: Net Income 1. Warfield. McConomy Intermediate Accounting. distribution.645. or transmission of this page is strictly prohibited.100 Deferred tax (benefit) (25.149. Wiecek. 2017 As previously reported $5.149. January 1. Young. 2017 5.400 Statement of Retained Earnings: Retained Earnings.706. Eleventh Canadian Edition PROBLEM 18-13 (CONTINUED) (d) Income Statement: Net income before income tax $1.400 Retained Earnings.000 28. 2017 $6.000 Correction of prior period error. Unauthorized copying.000 Restated balance.Kieso. net of income tax of $12. December 31.855. in future tax asset. Eleventh Canadian Edition PROBLEM 18-14 (a) 2017: Statement of Deductible Future Tax (ASPE) Financial Position (Taxable) Current Account Tax Carrying Temporary Tax Asset or Long- Dec. 2017 15. December 31. Wiecek.390 Future tax asset before adjustment 0 Incr.890 Future tax asset before adjustment 15. $89.390 Decr. and future tax expense for 2018 ($ 3. .420 LT Future tax asset.000 ($89.000) 133.680) C Rent Payable -0. 2018 11.030) C Rent Payable -0.390 2018: Statement of Deductible Future Tax (ASPE) Financial Position (Taxable) Current Account Tax Carrying Temporary Tax Asset Long- Dec.(133. December 31. and future tax benefit for 2017 $ 15. or transmission of this page is strictly prohibited. Unauthorized copying. Kieso.000) 27% ($24.000 27% 39. 2018 Base Amount Differences Rate (Liability) Term Prepaid Rent -0.000 ($92.000) 146.000 29% 38.570 LT Future tax asset. in future tax asset. McConomy Intermediate Accounting. Warfield. 2017 Base Amount Differences Rate (Liability) Term Prepaid Rent -0. 31. 31. Young. distribution. $92.500) Solutions Manual 18-173 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Ltd.000) 29% ($26.(146. Weygandt. 000 – $89. .000) Accrued rent expense not yet deductible 146.000 Interest incurred to earn exempt income 4.000 Reversing differences: Excess of rent paid over rent expense recognized ($92.000 Current income taxes at 28% $268.000 – $133.000 Permanent differences: Golf club dues $13.000 17.000) (3.000 17.014.000 901. Young. Warfield. or transmission of this page is strictly prohibited.000 1.000 Reversing differences: Prepaid rent deductible when paid (89. Wiecek.000 Taxable income $958. distribution. Unauthorized copying.000 Current income taxes at 29% $289.000 Interest incurred to earn exempt income 6.000) (13. Ltd.420 Solutions Manual 18-174 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) Excess of rent paid over rent expense recognized ($146.000) Taxable income $998. Weygandt.000 Permanent differences: Golf club dues $11.Kieso. McConomy Intermediate Accounting. Eleventh Canadian Edition PROBLEM 18-14 (CONTINUED) (b) 2017: Accounting income $884.240 2018: Accounting income $997. ......240 Income Tax Payable ..... Wiecek..... The classification of an individual future tax liability or asset as current or non-current is determined by the classification of the asset or liability underlying the specific temporary difference.............Kieso.. Warfield.....000 Income tax expense Current 289. 15......680 24.. Unauthorized copying.................. Ltd..... McConomy Intermediate Accounting........... ...570 $39..... 3..... 268. or transmission of this page is strictly prohibited........ 289.390 2018 Journal entries: Current Tax Expense ... future tax assets and future tax liabilities are segregated into current and non-current categories...........030 Under ASPE............850 Net income $704....................390) 292............... 289... Weygandt....920 252........................... 2018 2017 Non-current assets Future tax asset $38......150 (e) Refer to last two columns in tables in part (a) above........500 (d) 2018 2017 Income before income tax $997............ 3........ 15......420 Current liabilities Future tax liability ............240 Future Tax Asset ............420 268.... distribution..........420 Income Tax Payable ........080 $631.............500 Future Tax Asset .......... Eleventh Canadian Edition PROBLEM 18-14 (CONTINUED) (c) 2017 Journal entries: Current Tax Expense .000 $884.....390 Future Tax Benefit ........... Solutions Manual 18-175 Chapter 18 Copyright © 2016 John Wiley & Sons Canada..............500 (15.........240 Future (benefit) 3.......... 268....420 Future Tax Expense ......... Young... 26..... IFRS would tend to use the terms deferred.890** $15.4% Effective tax rate ($292.920/$997. McConomy Intermediate Accounting.390) **($38. Warfield.2% 294. these would be: 2018 2017 Non-current assets Deferred tax asset $11.000 3. distribution. Weygandt. Under IFRS.420 – $24. Solutions Manual 18-176 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.030 = $15.4% The effective tax rate differs from the statutory rate because of the effect of the permanent differences of golf club dues and interest.000) 29. Eleventh Canadian Edition PROBLEM 18-14 (CONTINUED) (f) Divided by Accounting @ 29% Income Accounting income $997.190 0. or transmission of this page is strictly prohibited. Ltd.890) IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position. although different terminology might be used (that is.680 = $11.920 29.570 – $26. Wiecek.390* *($39.740 0. and because of the effect of the change in tax rate during the year on the deferred tax accounts.000 1.Kieso. Unauthorized copying. .060 29.000 $289.000) × (29% – 27%) 57. (g) The responses to (a) to (f) would not change in amount.1%) $292.000 – $89. while ASPE preparers might use the terms related to future taxes).000 (1.130 29. Young.140) (0. The only calculation differences would be related to the classification of the deferred accounts on the statement of financial position.0% Non-deductible dues 11.5% Change in tax rate ($146.3% Non-deductible interest 6. .200.200. Kieso. McConomy Intermediate Accounting. Young.000 / $2.000 X 2%). Eleventh Canadian Edition PROBLEM 18-15 Prior year tax rate: $616.000) LT Pension liability (24.000) Deferred tax liability (related to PP&E). 31/17 ($660.000) 28% ($616. 31. 31.000 30% 9. Solutions Manual 18-177 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) * not provided.000) $ Decrease (net) needed in deferred tax liability. or transmission of this page is strictly prohibited. Wiecek. Ltd. Warfield.000) 30% ($660. Unauthorized copying.000 = 28% Statement of Deductible Deferred Tax If (ASPE) Financial Position (Taxable) Current Account Tax Carrying Temporary Tax Asset Long- Dec. 2017 Base* Amount* Differences Rate (Liability) Term PP&E before change ($2.000) LT in tax rate Increase in deferred tax liability due to change in tax rate ($2.200. Weygandt.300 C Deferred tax liability. no change in amount of PP&E temporary difference since Dec. Dec. 2017 Base* Amount* Differences Rate (Liability) Term PP&E ($2.200.100 * not given in the problem. Dec. 31/16 Statement of Deductible Deferred Tax If (ASPE) Financial Position (Taxable) Current Account Tax Carrying Temporary Tax Asset Long- Dec. and net deferred tax benefit $ 2.000) 30% (7. 31/17 ($657. and deferred tax expense adjustment (44.900) Deferred tax liability before adjustment ( 660. distribution.200) LT Warranty liability 31. 2.. Young......100 Deferred Tax Liability (loss carryforward) ..000 Pension funding > expense (24..000 ..000) 19. 40..000) Tax rate 30% Deferred tax asset and current benefit ($40.400 Deferred Tax Liability ……………………… ..000 = –$24.. 34. . .000 Reversing differences: Warranty expense 31.. Wiecek.000) 2017 Income tax journal entries: Income Tax Receivable ($123.400 ($44.. or transmission of this page is strictly prohibited.440 Deferred Tax Expense……………………………....Kieso... one entry could have been made as follows: Deferred Tax Expense …………………………..000)* Loss for income tax purposes (393.. 40.000) Permanent differences: Development costs (50% X $150..440 Current Tax Benefit .000) 50% realization probable 50% Portion of loss to recognize as benefit (135. Unauthorized copying... distribution.$40..100 Deferred Tax Benefit ……………………....000 – $111. 44... Weygandt.......100 . .000 Deferred Tax Liability ………………………….500 Deferred Tax Benefit (loss carryforward) .. 1......000 x 28%)……... Warfield. McConomy Intermediate Accounting.000) Carryback to prior years 123... Eleventh Canadian Edition PROBLEM 18-15 (CONTINUED) Calculation of loss for tax purposes and loss carryforward: Accounting loss ($494. .000 Meals and entertainment (50% X $38...500) * ($87.. 44....000 Loss available for carryforward (270. 34..500) Solutions Manual 18-178 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000) 75. Ltd.500 Instead of the three deferred tax entries above. in tax rate)….... 2........$2..... 1.000 Deferred Tax Liability (incr. 500) (8. Wiecek.200 = $1.Kieso.200 30.000 $148.000 due to a change in the tax rate in 2017. McConomy Intermediate Accounting. . Reconciliation – Statutory rate to effective rate: ÷ Account- @ 30% ing loss Loss before taxes $494.960) *($40.500 – $44. distribution.69% Effective tax rate ($33.69% Solutions Manual 18-179 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 x .000 (2.000 (44.55%) Meals/entertainment 19. or transmission of this page is strictly prohibited.91%) ½ of loss carryforward recovery not probable 135.700) (1.500) (4.20%) Tax rate adjustment on loss carryback ($123.040 6.400) Note to the financial statements: The deferred tax expense increased by $44. Weygandt.040 Net income (loss) ($460. Eleventh Canadian Edition PROBLEM 18-15 (CONTINUED) Income statement (partial) Loss before income tax ($494.15%) 120.000 (5.460) (0. Young.040 / $494.440 Deferred (1.200.400)* 33.200. Unauthorized copying.000) Income tax benefit (expense) Current – loss carryback $34. Ltd.00% Non-deductible: Development costs 75.000) (8.300 – $7.000 = 6.02) 2.000 (22.30% Tax rate adjustment on reversing differences ($2.02) 123.000 (40.000 x . Warfield.50%) $33.000 + $9.69%) 6.000 24. Eleventh Canadian Edition PROBLEM 18-15 (CONTINUED) Haley Inc. Young. and. a change in tax rate that impacts temporary differences that are being carried forward. . Wiecek.Kieso. or transmission of this page is strictly prohibited. recovery of prior year income taxes at a tax rate different than the current year rate. not recognizing the deferred tax benefit of half of the loss carryforward. McConomy Intermediate Accounting. Ltd. Unauthorized copying. Solutions Manual 18-180 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.’s effective tax rate differs from the statutory rate due to permanent differences that will never be subject to tax. Weygandt. Warfield. distribution. the 31% tax rate would be used when reducing the related deferred tax asset at December 31. Discussion: In determining the future tax consequences of temporary differences. and future taxable income is expected to be more likely than not for 2018 and future years. distribution. (2) If Golden reports taxable income in 2017 and ends the year with a deferred tax liability. it is helpful to prepare a schedule that shows in which future years existing temporary differences will result in taxable or deductible amounts. In making these calculations.Kieso. The appropriate enacted tax rate is applied to these future taxable and deductible amounts. McConomy Intermediate Accounting. Unauthorized copying. the 30% tax rate would be used in calculating the deferred tax liability at December 31. For future taxable (deductible) amounts. use the enacted rate for that future year to calculate the related deferred tax liability (asset). 2017. Young. if taxable income is expected in the year that a future taxable (deductible) amount is scheduled. Eleventh Canadian Edition PROBLEM 18-16 (a) (1) If Golden has taxable income in 2017 and offset it with a loss carryforward from 2016. you must make assumptions about whether the entity will report taxable income or losses in the various future years expected to be affected by the reversal of existing temporary differences. . 2017. Weygandt. you calculate the taxes payable or refundable in the future due to existing temporary differences. or transmission of this page is strictly prohibited. Golden would use the 30% tax rate for its deferred tax asset from the tax loss carryforward. Wiecek. you apply the provisions of the tax laws and enacted tax rates for the relevant periods. Solutions Manual 18-181 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Warfield. Ltd. So. If Golden reports a taxable loss in 2017 that is not fully absorbed through a carryback (or if the firm elects not to carry the loss back). In determining the appropriate tax rate. Wiecek. . McConomy Intermediate Accounting. Warfield. Eleventh Canadian Edition Solutions Manual 18-182 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Young. Weygandt. distribution. Ltd. Unauthorized copying. or transmission of this page is strictly prohibited.Kieso. Warfield. McConomy Intermediate Accounting. Ltd.000 + $450. Given the above information.Kieso. since the revaluation adjustment was reported via the other comprehensive income account. the same amounts would apply as calculated above. Any change required to adjust the deferred tax liability will be reported in net income. However. Eleventh Canadian Edition PROBLEM 18-16 (CONTINUED) (b) If the company expects to recover the value of the asset through a sale in the next year.000 $3. Solutions Manual 18-183 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying.000 will be recaptured and taxed at 30% = $360. the proceeds on this sale will attract different income tax rates. as the fair value adjustment was reported in net income.000 ($360.200. (c) If this property was accounted for using the revaluation method. Weygandt.000 will be taxed as capital gains and attract a tax rate of 15% (as given in the question) = $450. the deferred tax liability is calculated as follows: $1. Young. Wiecek. distribution. changes required to adjust the deferred tax liability account would be reflected in other comprehensive income.000.000).000 Total deferred tax liability will be $810. . or transmission of this page is strictly prohibited. The deferred tax liability should be calculated based on the applicable tax rates to be paid. Solutions Manual 18-184 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. Given loss situation—they will be looking to decide whether to divest or not. Ltd. Note that under ASPE. Warfield. or transmission of this page is strictly prohibited. To the extent that taxes were paid in previous years. as well as the Summary of the Case Primer in the front of the text. Wiecek. Young. Weygandt.Users include shareholders/investors who will want transparent statements.The role is that of company auditor and. the losses would first be carried back to recover these taxes and a partial benefit could be recognized. CA 18-1 BAKER COMPANY LIMITED Overview . distribution. the auditor would ensure transparency. . therefore. The real issue is whether there is sufficient certainty to recognize the benefits that might be realized if the losses are carried forward.Kieso. . The benefits may be recognized if it is more likely than not that the benefits will be realized (under ASPE) or probable (under IFRS). Note that the first few chapters in volume 1 lay the foundation for financial reporting decision making. Eleventh Canadian Edition CASE Note: See the Case Primer on the Student website. As a private company. . the company could use ASPE or IFRS and therefore differences will be identified. Analysis and Recommendations Issue: The issue is whether the benefit from the losses should be recognized in the current financial statements. McConomy Intermediate Accounting.Assume that GAAP is a constraint since the financial statements are being audited. the entity has a choice to use the taxes payable method or future income taxes method. . This ultimately depends on the existence of sufficient taxable income in the carryforward period to be able to utilize the loss and shelter future taxable income.Management has high expectations of the company’s ability to turn around and continue to grow—and may be biased to show this. Therefore. if using the under will hopefully open taxes payable method up new markets and help (ASPE). scheduled to be introduced . might be in two to three more years for a better position to predict consumer spending to the future. Solutions Manual 18-185 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. distribution. of marginal profits only such that the company is (and. unfavourable and there are sufficient evidence would include the customers lined up to fact that there is a history purchase the products. Ltd. It is not . of course. . therefore. it might be be doing something right.Kieso. McConomy Intermediate Accounting. assets would be recorded in advance. recognize taxes . Unemployment argued that no one can is still high and consumer really predict the future.The fact that the company unusual for companies to did not suffer pre-recession sustain losses in the start- losses in its first two years up period. this option receivables based on would not be allowable current and/or refiled tax under the taxes payable returns.In this case. certain unfavourable Two new products are evidence exists. would only increase market share. is a signal that they must . Eleventh Canadian Edition CA 18-1 BAKER COMPANY LIMITED (CONTINUED) Recognize benefit of losses Do not . spending has still not Management has better increased significantly. Weygandt. .In addition.Furthermore.Forming a conclusion that management has big plans the benefits are likely to be to expand into new realized is difficult when markets with new products. formative years. Young.On the one hand.In addition. The insight into its own fact that economists are company and customers predicting that it might take and. or transmission of this page is strictly prohibited. no tax method (ASPE). Warfield. argued that the current With respect to the state of the economy is economists. it might be unsettled. Wiecek.The fact that numerous uncertainty. recover results in more . the loss) predicting at least a break and the fact that this even situation using company is still in its conservative estimates. competitors have gone . Unauthorized copying. or transmission of this page is strictly prohibited. Solutions Manual 18-186 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.Kieso. Ltd. Eleventh Canadian Edition CA 18-1 BAKER COMPANY LIMITED (CONTINUED) In conclusion. Weygandt. The unrecognized benefits and expiry dates would be note disclosed. although management might be able to make a strong case for profitability. Wiecek. Young. This is in keeping with the role of auditor. it is still a projection at best and. . distribution. Warfield. given that the economy still appears to be slow. McConomy Intermediate Accounting. it might be more conservative not to recognize the benefit. Unauthorized copying. Ltd. distribution. Young. McConomy Intermediate Accounting.e. Solutions Manual 18-187 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.(early adopt) or IAS 39. . .If FVTPL (HFT) – revalue to fair value and gains/losses to net income. . . company must decide whether to follow IFRS 9 . (CI) Overview .borderline for .Bank and potential investors are key users who will be relying on statements to make decisions – need transparency.No longer being held for . Weygandt. Wiecek. (1/4) may allow influence. Warfield.20% inconclusive.Original intent was for prices rise above certain strategic purposes. Eleventh Canadian Edition INTEGRATED CASE IC 18-1 CAUCHY INC.20% .Public company since shares trade on TSX – IFRS is a constraint. . intent to sell/trade is share .Role – controller – potential bias towards making company look better since looking for new capital and to potentially refinance loan.Representation on Board strategic purposes – i.If FVOCI – revalue to fair value and gains/losses to OCI (if following IFRS 9 must elect). Unauthorized copying. . .For investments. significant influence. . or transmission of this page is strictly prohibited. point.Option to treat as either (FVTPL and/or FVOCI) under IAS 39 or IFRS 9.Kieso. Analysis and recommendations Issue: Investment in common shares Equity method At fair value with gains and losses through income or OCI . distribution. Eleventh Canadian Edition IC 18-1 CI (CONTINUED) Recommendation: Could select any of the options however.Under IAS 39 – may have business model includes to segregate the conversion managing debt instruments option and value at fair on a yield to maturity basis value (embedded and thus this would not be derivative). Weygandt. debt instruments. Issue: Investment in bonds Amortized cost Fair value (with gains/losses booked to income) . Young. IC 18-1 CI (CONTINUED) Solutions Manual 18-188 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. . Warfield. the option to value at FVOCI is not available under IFRS 9.Under IAS 39 . or transmission of this page is strictly prohibited.Under IFRS 9 – use hold to maturity expressed amortized cost only if and ability to hold given company manages cash new potential influx of cash flows on the basis of yield (raising capital). to maturity and contractual . NB.Intent to . is not clear that the entire . This option is available under IFRS 9 and IAS 39. Unauthorized copying. IFRS 9 only allows this option for equity instruments.Amortized cost – amortize cash flows include principal premium as an adjustment and interest. given the intent to sell if the shares reach a certain price.In addition. McConomy Intermediate Accounting. Ltd. In this case it to interest cost. since these are of the text. consider measuring at fair value with gains/losses through income (easier). This is valued at amortized cost. generally beyond the scope .Kieso. Wiecek. Recommendation: To value at fair value with gains/losses through income. Unauthorized copying. it may invoke tainting provisions (if significant). Warfield. . Wiecek. Ltd. McConomy Intermediate Accounting. . would no longer be able to value this and other debt securities at amortized costs. do not measure at amortized cost upfront and avoid risk of tainting. Weygandt. Young.Kieso.More transparent to value at FVTPL since business model seems to indicate the investments are incidental to main business. Therefore. If this is the case. distribution. or transmission of this page is strictly prohibited. Eleventh Canadian Edition Amortized cost Fair value (with gains/losses booked to income) . IC 18-1 CI (CONTINUED) Solutions Manual 18-189 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.Under IAS 39 if classified as HTM (amortized cost) and sell prior to maturity. Ltd. Wiecek. otherwise if not transferrable).Proprietary info considered therefore considered an separable unit – transferable integral part of the whole per company and therefore transaction (has no value must have standalone value. . distribution.Objective and reliable .Persuasive evidence of contract – since deal is done and likely documented.Recognize over time – straight evidence of undelivered item line unless other pattern.Kieso.Delivery of proprietary info already occurred. Recommendation: To recognize entire contract amount over time as more reflective of the bundled nature of the transaction.Measurable since no material uncertainties. . Solutions Manual 18-190 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. completion method. Eleventh Canadian Edition Revenue recognition – Non-refundable fees Recognize upfront fee Do not . since issued renewal . .Would have to bifurcate. or transmission of this page is strictly prohibited.Multiple element . Weygandt.Proprietary info may not be arrangement? transferable separately and . McConomy Intermediate Accounting.May use percentage of contracts to others this year. Unauthorized copying. . . . Warfield. Young. Otherwise expected to be profitable next year.Must ensure effective. contract) already essentially . Wiecek.Modifies normal accounting. gains/losses from hedged . Unauthorized copying. Recommendation: There is no need to use hedge accounting. Young.No need to use hedge same period. distribution. or transmission of this page is strictly prohibited. Ltd.Costs and complexity are items offset gains/losses from significant.Not sure if company will be .Must ID hedging relationship offset (forward contract between hedged and hedging recognized. Weygandt. .Meant to ensure that . US AR revalued to spot rate with gains and losses to net income). accounting since gains and .Kieso.Natural hedge does not require special accounting since US AP also revalued to spot rate with gains/losses to income. McConomy Intermediate Accounting. . Warfield. hedging items in income in . hedging items (forward . Eleventh Canadian Edition IC 18-1 CI (CONTINUED) Issue: Hedging Hedge accounting – discussion of No hedge accounting theory as requested by client . . income already. valued at fair item value and gains/losses to net .Must use if do not already do losses of hedged (US AR) and so. Risk that counterparties will fail to complete transaction – forward contract – would mean still exposed to risk.Optional. Issue: Recognize benefit of LCF Yes No . profitable.Due to a one-time loss. Solutions Manual 18-191 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Whether the past losses were a result of specific events which are unlikely to recur in the future d. 25 and 27 and 28. If this is not “probable”. distribution. Young. income tax benefits associated with the ability to reduce income taxes in the future can be recognized as tax assets currently only if it is probable – more likely than not – that the entity will generate taxable income in the future against which those deductible temporary differences can be applied to reduce taxable income and future taxes. In such a case. Eleventh Canadian Edition RESEARCH AND ANALYSIS RA 18-1 DEFERRED TAX ASSETS and IAS 12 a) According to IAS 12. (b) IAS 12. or. Future taxable income without considering reversing temporary differences and carryforwards in the carryforward period c. in addition to having enough taxable temporary differences. IAS 12.31 indicates that an entity should consider the guidance in paragraphs 35 and 36 when it has a history of recent losses such as Davida Limited has.24. and within the same taxation authority) within the carryback. or transmission of this page is strictly prohibited. Realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on being able to earn sufficient taxable income of the appropriate character (for example. These criteria are: a. Wiecek. Warfield. Weygandt. the carryforward period available under the tax law. Whether tax-planning strategies could be implemented. in your case. That is. then the asset and associated reduction in the accounting loss cannot be recognized.Kieso. Solutions Manual 18-192 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. McConomy Intermediate Accounting.36 indicates what criteria should be considered in making judgements about whether future taxable income will be available. Future reversals of sufficient existing taxable temporary differences that will result in increased taxable income b. Ltd. Unauthorized copying. the benefits have to be capable of being realized. there has to be some convincing evidence in order to recognize the benefits and deferred tax asset currently. . ordinary income or capital gain.  At a minimum. Eleventh Canadian Edition RA 18-1 DEFERRED TAX ASSETS and IAS 12 (CONTINUED) (c) IAS 12. This has resulted in the recognition of deferred tax liabilities and increased provisions for income taxes (reduced tax benefit) on your income statements. Weygandt. distribution. . the company has deducted more capital cost allowance than depreciation expense in determining its taxable losses. These involve using tax regulations to your best advantage.  Davida should also perform a review of all its revenue and expense recognition policies.30 provides examples of types of tax planning strategies that might be implemented to help ensure future taxable income will be available. no capital cost allowance should be taken for the current year. or change the nature of taxable or deductible amounts from ordinary income or loss to capital gain or loss (3) Switch from investments that generate non-taxable income to those that generate taxable income. Warfield. Ltd. The examples provided can be summarized as: (1) Accelerate taxable income amounts. In Davida’s situation. This would have the effect of reducing your past taxable losses and amount of loss carryforwards. particularly for tax purposes. and increasing the undepreciated capital cost of your capital assets that will be available to be used in the future. by deferring the tax deductibility of certain expenses or speeding up the taxability of certain income items. to determine if there are any that could legitimately be changed to recognize revenue earlier and expenses later. some of these tax planning ideas are useful:  In the past. and perhaps all. Solutions Manual 18-193 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. McConomy Intermediate Accounting. in order to use carryforwards before they expire (2) Sell capital assets that have appreciated in value to recover past capital cost allowance claimed that will increase future taxable income. Wiecek. capital cost allowance claimed in the past. Management could approach the tax authorities for approval to open up and adjust past tax returns to eliminate any. Young. The effect has been to increase your taxable losses available for carryforward. particularly where an entity has choices. Unauthorized copying. thus increasing the current period taxable income.Kieso. or transmission of this page is strictly prohibited.  The interests of financial statement users conflict with each other: for example. the very clear intent of IAS 12. distribution. Ltd. such as in this situation in assessing the likelihood of generating sufficient future taxable income so that a significant income tax asset and income tax benefit can be recognized. For all these reasons. Davida will be penalized in the future through higher costs of capital – a risk component will get built into interest rates charged by creditors and prices paid for ownership capital. Wiecek. professional. Eleventh Canadian Edition RA 18-1 DEFERRED TAX ASSETS and IAS 12 (CONTINUED) (d) Whenever judgement must be exercised. management and the board of directors should have as their objective.  Many of the tax planning ideas reflect only choices permitted under the tax legislation. McConomy Intermediate Accounting. There are no ethical implications related to making these choices. while potential shareholders are interested in buying in at a reasonable price. it is important that users know they can depend on the financial position and results reported. This latter approach presents difficulties for the following reasons:  It is contrary to the concepts underlying generally accepted accounting principles. the ethical. probably on the low side. If there is any indication of overly aggressive accounting. the reporting of the situation closest to economic reality. and sustainable decision is to measure the likely availability of future taxable income applying judgement consistent with the objective of the IAS 12 requirements. current shareholders want the prospects to look as good as possible so they can sell their shares at a high price. . sometimes these decisions are made based on how management perceives the company’s resulting financial statements and its financial position and prospects will be interpreted by others. to both existing and potential investors and creditors. such ethical dilemmas need to be resolved in terms of what is in the best long-run interests of the shareholders. and the professional ethics of Davida’s financial management personnel and the board of directors. and it will faithfully represent the company’s financial position and financial performance.  Where management might be tempted to make less-than-ideal business decisions to attract a more advantageous tax treatment. or transmission of this page is strictly prohibited.Kieso. Warfield. and have no effect on company operations. Weygandt. Young. Unfortunately.  As a relatively new company. That measure will be the one that is most relevant to stakeholders. Solutions Manual 18-194 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Unauthorized copying. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition RA 18-2 MAPLE LEAF FOODS INC. Note: all amounts are in thousands of Canadian dollars. (a) The amount of the income tax expense (benefit) related to the loss from operations before discontinued operations on the company’s Statement of Net Earnings for 2014 was a benefit of $74,556 and for 2013, a benefit of $51,500. (Because of losses incurred in operations that are continuing, and the fact that these losses can be deducted from taxable incomes going back to recover past taxes and/or carried forward to reduce future taxable incomes, the benefits associated with some of the losses can qualify as a tax asset and tax benefit in the year of the loss.) The company uses intraperiod tax allocation relating to its discontinued operations in both years, as well as for its other comprehensive income (OCI) items. Note 25 indicates that discontinued operations attracted income tax expense of $107,123 in 2014 and $127,790 in 2013. The company had positive earnings and gains on the disposal of the operations they discontinued in each year, and the related tax effect needs to be associated with the underlying transactions that attract the tax. Items in OCI tend to be the result of unrealized gains and losses that will eventually attract income tax when realized. The tax expense/benefit, however, is associated with the events when recognized for accounting purposes. In 2014, three such specific items were recognized, resulting in recognizing a net $16,800 related tax benefit in OCI; and in 2013, three items were recognized which attracted a net income tax expense of $70,600. In each of the three cases in the two years, the tax is reported along with the type of gain or loss reported. There are income taxes payable of $26,614 on the most recent SFP, and $0 for the comparative date the previous year. However, there was $43,300 of income and other taxes receivable at December 31, 2013, but no amount for this account at December 31, 2014. This is in comparison with amounts reported on the statement of cash flows of net income taxes received of $1,442 and $28,537 in 2014 and 2013, respectively. It should be noted that the references to income tax adjustments to net earnings in the top portion of the operating cash flows section of the cash flow statement, both current and deferred, were merely to add back/deduct the amounts reported on the statements of net earnings so that the company could report the actual amount of net income taxes paid/received as a separate line item below. Reporting the income taxes paid or received in a year is a required disclosure. (b) The income tax benefits reported using the statutory tax rates and effective tax rates for 2014 and 2013 are presented below. There are minor differences between these two rates and the resulting benefits in each year because of offsetting amounts. Solutions Manual 18-195 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition RA 18-2 MAPLE LEAF FOODS INC. (CONTINUED) (b) (continued) 2014 2013 ($ in thousands) Income tax(benefit) at applicable statutory rate ($76,418) ($51,125) Increase in benefit and rate due to non-taxable capital gains (1,965) $(5,911) Increase in benefit due to “other” reasons (1,394) (1,888) Reduction in benefit and rate due to manufacturing and processing credit 2,050 1,376 Reduction due to share based compensation 1,212 3,698 Reduction in benefit due to non-deductible expenses 1,140 1,905 Reduction due to tax rate differences in other countries 408 407 Reduction due to non-recognition of tax loss benefits 411 -0- Reduction in benefit due to change in deferred balances re tax rate changes -0- 38 Total income tax benefit at effective rates ($74,556) ($51,500) Canadian Statutory rate 26.5% 26.5% Effective Tax Rate: ($74,556/$288,369) 25.9% ($51,500/$192,925) 26.7% The Company’s applicable statutory rate is the Canadian combined rate applicable in jurisdictions in which the Company operates. The causes of the increases and decreases in this tax rate and the resulting tax benefit are explained in the table above. As is indicated, the effective rates did not deviate too far from the statutory rates when all causes of various effects are considered. (c) A schedule of the deferred tax balances reported on the 2014 SFP, along with their causes and the related asset or liability with different tax and book values is reported below. Under IFRS, all deferred tax balances on the SFP are considered non-current. (Under ASPE, it would be based on the classification of the related asset or liability. Where there is no related asset or liability, the classification of the tax balance would be based on when the related temporary difference was expected to reverse.) Solutions Manual 18-196 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition RA 18-2 MAPLE LEAF FOODS INC. (CONTINUED) (c) (continued) Amounts in $000 Amount SFP item Deferred Tax Assets Tax loss carryforwards $47,411 No SFP account Accounts payable and accruals, Accrued liabilities 39,376 & provisions Employee benefits 9,565 Employee benefits (a liability) Other 734 Not identified $97,086 Deferred Tax Liabilities Property and equipment $7,673 Property & equipment Cash basis farming 8,822 Accounts receivable Goodwill and intangibles 5,605 Goodwill & intangible assets Total $22,100 Reported on the SFP as a $74,986 As a non-current asset deferred tax asset (d) Maple Leaf Foods, in Note 24, indicates that it has no unrecognized deferred tax assets at December 31, 2014 (although it did have approximately $39,000 of such assets at December 31, 2013 representing mainly Canadian and U.S. tax losses available to carry forward). The company explains that tax benefits associated with all of its tax losses at December 31, 2014 are expected to be realized in the future through earning sufficient taxable profits. The company indicates that it has unrecognized deferred tax liabilities related to the undistributed earnings of subsidiaries and other investments. The reason provided for the non-recognition is that Maple Leaf Foods is able to control the distribution of any such amounts in the future and it is not probable that such amounts will be distributed in the foreseeable future. Therefore, since there will be no future reversal of the temporary differences, no deferral has been recognized. Solutions Manual 18-197 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition RA 18-3 COMPARATIVE ANALYSIS (a) All three companies operate in the retail food industry. Loblaw and Empire operate grocery stores, drug stores and real estate interests (Loblaw also has a financial services segment) in Canada, and Alimentation Couche-Tard (Couche-Tard) operates convenience stores in North America, Scandinavia, Poland, the Baltics and Russia. (b) A schedule of the total income tax provision for each company is presented below. All three companies included income tax provisions in current net earnings and other comprehensive income items. Couche-Tard Loblaw Empire (in millions of $) US$ CAD$ CAD$ January 3, Year ended April 26, 2015 2015 May 2, 2015 Total tax provision shown in statement of earnings 306.2 25.0 150.4 Tax provision in other comprehensive income (i) -11.5 -16.0 -10.1 _____ ____ _____ Total income tax provision 294.7 9.0 140.3 (i) Note – this was determined from each of the OCI items found either in the notes or on the statement of comprehensive income. No provisions were found in the retained earnings of any of the companies. (c) A schedule of the companies’ deferred income tax assets and liabilities as at their most recent balance sheet dates, along with the source of the underlying temporary differences, is presented below. One would expect companies in the same industry to have similar temporary differences and these three companies do have some major temporary differences in common. Although the companies use different wording to describe the underlying temporary differences and report in varying degrees of detail, there are major similarities for property and equipment, goodwill and intangibles, loss carryforwards, and for other liabilities (the expectation is that Couche-Tard’s “expenses deductible in future” are similar). Solutions Manual 18-198 Chapter 18 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. 3 Tax attributes 80. Wiecek.8) (517) (93. or transmission of this page is strictly prohibited.8 52 2.5 Trade and other payables 56 3.816) (166. in many respects.9) (1. in that all three are Canadian based companies.3 Inventories 5.687) -0- (d) Yes. Solutions Manual 18-199 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.1) Asset retirement obligation 70.8 Other liabilities 347 113.8) Deferred (charges) credits (net) 30. Therefore. Young.6) (1.7 Other assets 10 (0. Eleventh Canadian Edition RA 18-3 COMPARATIVE ANALYSIS (CONTINUED) (c) (continued) Couche- Tard Loblaw Empire (in millions of $) US$ CAD$ CAD$ Property and equipment (524.2) Equity 11. Couche-Tard’s tax rates may be somewhat different.6 Long-term debt/liabilities 15.7) Expenses deductible in future 118.5) Loss carry forwards 181 52. Weygandt.6) Investments (19. one would expect the three companies to be subject to similar income tax legislation and tax rates.2 Goodwill and intangibles (205.2 Unrealized exchange gain (loss) (6.6 Net deferred tax assets (liabilities) (478.5 Provisions 75. .3 Revenues taxable in future (61. Ltd.2 Other 20. Warfield. while Couche-Tard operates mainly in Quebec and Ontario in Canada. as well as in many countries around the world.Kieso. Unauthorized copying. However. Loblaw and Empire operate in most provinces. The three companies’ statutory rates and their effective tax rates are indicated below. McConomy Intermediate Accounting. distribution. While the tax losses expire in years ranging from 2027 to 2034.2% FV adjustment to Trust Unit Liability 5. Young. Empire. Warfield. For example.1% 25. . while Couche-Tard makes no mention of any unrecognized amounts.2% Capital items (0. Empire indicates that all deferred tax assets have been recognized in the accounts.96%) (3. appears to have had capital gains in its income which attract a lower rate of tax. Solutions Manual 18-200 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.78% 2.7% 32. Unauthorized copying. (e) Loblaw discloses the fact that it has unrecognized deferred tax assets of $76 million relating to deductible temporary differences ($19) and income tax losses ($57). distribution.1% 26.9% 26. Ltd. the deductible temporary differences do not expire. thereby increasing the company’s effective rate. Eleventh Canadian Edition RA 18-3 COMPARATIVE ANALYSIS (CONTINUED) (d) (continued) Couche-Tard Loblaw Empire* Statutory rate in Canada 26.8%) Other (0. on the other hand.2%) Effect of tax rate changes (0.4% Difference due to different rates in other countries (2.8% Adjustment re prior periods 1. Most of the differences between the statutory rates and effective rates are due to the types of non-operating transactions that the companies engaged in during the year.Kieso. Wiecek. or transmission of this page is strictly prohibited. The reason provided for the non-recognition of the associated tax benefits as deferred tax assets is that it is considered not probable that future taxable income will be available to enable the company to use the temporary differences to reduce future income taxes payable.2%) Effective rate reported 24. McConomy Intermediate Accounting. although Loblaw indicates in Note 35 that all material operations are carried out in Canada.2% 0.6% *Calculated % changes from dollar information g Both Couche-Tard and Loblaw benefitted from lower tax rates in other jurisdictions. Weygandt. Loblaw made a fair value (loss) adjustment on a Trust Unit Liability which was likely not a tax-deductible item.02%) Permanent differences 0. Ltd. Warfield. Union Pacific: two very minor offsetting differences Solutions Manual 18-201 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.0% 3.4% 1. or transmission of this page is strictly prohibited. 37.9% 5. Canadian 2014 12. .5% 5. Deutsche Bahn: recognition of temporary differences and losses carryforward. but in different countries.2% statutory rate United Dec.Kieso.NSB Group 2014 Canada Dec.1% state = Railroad 38. 31. CNR: minor difference due to minor offsetting tax reduction due to lower rates for capital gains and increase due to a prior year’s income taxes 5. Unauthorized copying. distribution. East Japan: increase made in valuation allowance 3. Union Pacific States 2014 3. Eleventh Canadian Edition RA 18-4 INTERNATIONAL COMPARISON (a) Below. Young. Wiecek. McConomy Intermediate Accounting.4% 4. East Japan 2013a Railway Company Norway Dec. 31.0% 2. Country Year end Statutory Effective income tax rate income tax rate Germany Dec. 31.1% statutory Corp. 35. is the schedule of information on statutory and effective income tax rates for five companies operating in the railroad industry. 30. 15. non-taxable income received 2.2% provincial National and other = Railway 27. immaterial. non-taxable government grants received for purchase of capital assets. 27. Weygandt.0% federal + 37.8% 42. NSB Group: ¾ of the reduction due to permanent differences related to investments. 31. (b) Notes explaining difference between statutory and effective rates: 1. 31. rate a Tax rates were not reported for its year ended March 31. Deutsche 2014 Bahn Japan Mar.0% federal + 27.0% 6. lower foreign taxes. most of remainder due to recognition of benefit of tax loss not previously recognized 4. 2014 because the variance between the statutory and effective rates was less than 5% and therefore. Weygandt.S.Kieso. McConomy Intermediate Accounting. Wiecek. Young. . Ltd. Solutions Manual 18-202 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Eleventh Canadian Edition RA 18-4 INTERNATIONAL COMPARISON (CONTINUED) (b) (continued) The table above indicates that most countries in the list have a similar statutory rate of 30% – 38%. Warfield. distribution. All countries appear to be applying the same method of accounting for income taxes for financial reporting purposes. or transmission of this page is strictly prohibited. Unauthorized copying. most likely reflecting a difference in the areas that each level of government has responsibility for. It is interesting to note the difference between the federal and provincial/state rates of the U. and Canadian railways. with Canada and Norway a little lower at 27%. distribution. or transmission of this page is strictly prohibited. Therefore. then.000 or ($800.000 ($1 million X the 3% increase in rates) is required to increase the deferred tax liability to the correct balance. McConomy Intermediate Accounting. [IAS12.47]. and the required adjustment in this case would be the same as indicated under ASPE. that is. IFRS: Under IFRS. the building is required to be carried at amortized cost and will not be revalued to fair value. the company also has an option to account for the building using the revaluation method.61A require backward tracing.000 is identical because IFRS requires the deferred liability to be measured at the amount expected to be needed to settle the obligation to the tax authorities. the increase in the deferred tax liability of $30.51]. the existing temporary difference of $6. is an increase in the deferred tax liability of $24.58(a) and .Kieso.0 million and its tax base of $5.8 million remains.5 million) results in a “gain” that is reported in revaluation surplus.51] Therefore.60]. Using this method.0 million . for the deferred tax adjustment to be recognized directly in equity (in this case. Eleventh Canadian Edition RA 18-5 IFRS and ASPE (a) (1) ASPE: Under ASPE.$2. (except one time on transition to IFRS which is being ignored as part of this question). [Section 3465.3 million). Weygandt. The associated increase in the deferred tax expense is reported in the current year’s deferred tax expense and in income before discontinued operations [see 3465. Warfield. (2) ASPE: Under ASPE. Such assets are not revalued. The treatment required for the corresponding increase in tax expense under IFRS is different than that indicated for ASPE. The associated $30.000 X 3%) [see Section 3465. The adjustment required. normally using those rates enacted at the reporting date. Unauthorized copying. using the tax rates that have been enacted or substantially enacted at the reporting date.3 million between the accounting value of the asset of $10. There is now a total temporary difference of $4.60] IFRS: Under IFRS. However. an adjustment of $30. Young. Ltd. . [Section 3465. the increase in the fair value of $3.59 and .59 and .000 adjustment to income tax expense is required to be reported in with the current year’s deferred income tax expense in income before discontinued operations. an adjustment must be made to the deferred tax liability account so that it is measured and reported at the amount at which the liability is expected to be settled.5 million ($10. IAS 12.7 million ($8 million – $2. the company has the option of accounting for the building at amortized cost.5 million – ($8. Solutions Manual 18-203 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.0 million less $6. but the deferred tax liability related to this temporary difference must be adjusted for the same reasons as in part (1). under IFRS. Wiecek.3 million) or $0. a component of OCI. retained earnings) if the original deferral was recognized in equity. because the tax base and accounting value of the asset are the same at $340. Also.$5.5 million . distribution. since the gain is only reported for tax purposes when realized. In addition. or transmission of this page is strictly prohibited.000. in addition to the $24. the company has the option of reporting this investment at fair value through net income (FV-NI) or at cost. Warfield. If the equity investment is accounted for at cost. a revaluation gain of $3.Kieso.000 + $980.000 cr Increase due to 3% tax increase: 3% ($6.004.000 cr Deferred tax on revaluation gain in OCI: 28% X ($10 million .5 million would be reported in OCI (revaluation surplus).69].5 million . Tax expense components relating to the change in tax rates would be separately disclosed [see IAS 12.03].$6. . and no increase in value is reported in net income. McConomy Intermediate Accounting. The deferred tax liability account increases by a total of $24. Weygandt. and the same approach is assumed throughout these situations [see Section 3465. Unauthorized copying.000 cr Total = $1.204.7 million) = 24. there is no temporary difference and therefore no deferred tax liability.58].000.61].5 million) = 980.7 million) = $200. there is no effect on taxes payable in 2017. Young. (3) ASPE: While ASPE permits use of the taxes payable method or the temporary difference approach for reporting income taxes. net of a deferred income tax expense of $980.000 [see IAS 12. The deferred tax liability is reported on the statement of financial position as a non-current liability [see IAS 1. the investment’s carrying amount remains at $340. Eleventh Canadian Edition RA 18-5 IFRS and ASPE (CONTINUED) (a) (continued) (2) (continued) The related deferred tax liability on the reporting date would be: Balance before adjustment: 25% X ($6.80(d)].$5.000. Wiecek. However.000 cr Under this option. Solutions Manual 18-204 Chapter 18 Copyright © 2016 John Wiley & Sons Canada.000 = $1. LGS appears to have adopted the temporary difference (future income taxes) approach for its prior period adjustments and capital assets.000 increase in the deferred tax liability account on the balance sheet and the deferred income tax expense on the income statement due to the 3% increase in the tax rate [see IAS 12. Ltd. 000 X 28%). Eleventh Canadian Edition RA 18-5 IFRS and ASPE (CONTINUED) (a) (continued) (3) (continued) If the investment is adjusted to its fair value of $510.47. . Solutions Manual 18-205 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. LGS must account for the investment at fair value through net income (FV-NI). none of the effects in the ASPE columns in the table below would be applicable.Kieso.51 and .000. 58. At a tax rate of 28%. the accounting value is $510. or transmission of this page is strictly prohibited. If the company did change to the taxes payable method. since the investment was not acquired for contractual cash flows and it appears the shares were acquired for trading purposes.000 – $340. This tax effect is reported as the deferred tax expense component of income tax expense on the 2017 income statement in income before discontinued operations [Section 3465.000. In this situation. the resulting unrealized gain of $170. the deferred tax liability account needs to be increased by $47.600 ($170. the accounting is exactly the same as for ASPE above when carried at FV-NI [IAS 12.15.77].000. Unauthorized copying. NOTE: Under ASPE. 46 and . distribution. and therefore there is a temporary difference of $170.20. IFRS: Under IFRS. . . LGS is permitted to switch to the taxes payable method without the usual stipulations required for a change in accounting policy required under Section 1506. Wiecek. adjusted through 2017’s opening retained earnings. the effects of using the temporary difference/future income taxes method would be accounted for retroactively. Weygandt. The effect would be the elimination the existing deferred tax liability account and a reduction in income tax expense in each of the specific years the deferrals had been increased. Ltd. For situations (1) to (3). McConomy Intermediate Accounting.03].000) is reported in net income.59]. Young.000. The tax base of the investment is $340. Warfield.000 ($510.06(b) [Section 3465. 000 $-0- 2.000 +$24. and does not recognize OCI).3% tax increase +$30.000 *related to income before discontinued operations It appears the effects are relatively similar.Kieso. Eleventh Canadian Edition RA 18-5 IFRS and ASPE (CONTINUED) (b) ASPE IFRS Effect on Effect on Effect on Effect on Situation deferred tax 2017 tax deferred tax 2017 tax liabilities expense* liabilities expense* 1. A real difference would be felt if LGS chose to use the taxes payable method instead. Young. .004 Revaluation N/A N/A million +$24. and in part (2) because ASPE does not allow fair value changes to be recognized anywhere other than net income (does not allow the revaluation method or the FV-OCI method for investments. Solutions Manual 18-206 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. as there would be no adjustments on an ongoing basis under ASPE in the table above.000 +$24. The areas of difference relate to the fact that under ASPE.000 +$24. or transmission of this page is strictly prohibited. Ltd.000 +$47.Cost +$24. Weygandt.000 +$47. McConomy Intermediate Accounting.000 method +$1.000 +$47. distribution. Wiecek. Warfield. more adjustments are recognized in net income – in part (1) because of no backward tracing of changes in tax rates.000 +$30.000 method 3.Shares At cost N/A N/A N/A N/A At FV +$47.000 +$30. Unauthorized copying. A deferred income tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carry-forwards using the enacted (or substantially enacted) tax rates expected to apply when the temporary differences reverse. Eleventh Canadian Edition RA 18-6 BASIC CONCEPTS and PRINCIPLES (a) The following objectives of accounting for income taxes are identified in the introduction to IAS 12 Income Taxes: 1. To appropriately present and disclose information related to income taxes in the financial statements. and b. and with types of capital transactions. activities and events together with the type of transaction or event that gave rise to the tax effect. 2.Kieso. . The carrying amounts of assets and liabilities recognized in the statement of financial position as those assets are realized and obligations are met. distribution. deferred tax assets are adjusted to remove the potential tax benefits where it is not probable that they will be realized. 6. The current accounting period transactions and events that have been recognized. 3. 3. McConomy Intermediate Accounting. A current income tax liability or asset is recognized for the estimated taxes payable or refundable based on the tax return for the current year. Future tax expense is based on the changes required in the carrying amounts of the deferred tax assets and liabilities in the statement of financial position. Weygandt. To properly recognize and report information about the tax consequences related to unused tax losses and unused tax credits. and based on available evidence. Solutions Manual 18-207 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. 4. or transmission of this page is strictly prohibited. Warfield. for the most part. 2. To report the current and future tax consequences of current period transactions. (b) The following basic principles are applied in accounting for income taxes at the date of the financial statements: 1. Wiecek. 4. Income tax expense is “matched” with the related type of transaction that gave rise to the tax. is related to the recognition of revenues and expenses under GAAP. discontinued operations. such as with income before discontinued operations. Unauthorized copying. events recognized in retained earnings. 5. Ltd. Current income tax expense. If necessary. To recognize the current and future tax consequences related to a. Young. items of OCI. Weygandt. there is one difference between ASPE and IFRS. In reporting deferred tax assets and liabilities. or transmission of this page is strictly prohibited. ASPE (under this alternative) will report future tax assets or future tax liabilities as either current or non-current. (Note: we use the term deferred here and below for both IFRS and ASPE to simplify the discussion.Kieso. Ltd. distribution.) These deferred tax liabilities and deferred tax assets meet the definitions of liabilities and assets in the conceptual framework. the deferred (or future) income tax outflows and inflows related to the realization of assets and the settlement of liabilities for their carrying amounts are recognized as deferred tax liabilities and deferred tax assets. Young. Wiecek. This method is considered to be more effective in achieving the objective of financial reporting— communicating information that is useful to users—as the method provides users with better measures of a company’s economic resources and obligations where there are income tax consequences associated with asset and liability recovery or settlement. . Temporary differences between an asset’s or liability's carrying amount and its tax base or unused tax losses. Solutions Manual 18-208 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. This classification will depend on when the future tax amount is expected to reverse. Temporary differences between an asset’s or liability's carrying amount and its tax base may require additional tax payments in the future as the asset is realized or liability is settled. McConomy Intermediate Accounting. may generate benefits in the future in the form of reduced tax payments or a recovery of taxes paid in the past. Eleventh Canadian Edition RA 18-6 BASIC CONCEPTS and PRINCIPLES (CONTINUED) (c) Under the future income taxes method (ASPE) or the temporary difference approach (IFRS) of accounting for income taxes. Warfield. Unauthorized copying. all deferred tax assets and liabilities are classified as non-current. Under IFRS. Warfield.  Does this represent a represent an enforceable obligation? The company does not yet owe these taxes. This liability represents a “conditional obligation to pay” given certain future events occur. Unauthorized copying. Therefore. giving it little discretion to avoid the obligation that results from a past transaction. or transmission of this page is strictly prohibited. Also. determine the present values of each of these outcomes. and this is not a liability. if a company continues to invest in property. they are merely “probable. As such. Wiecek. and the realization of this deferred tax asset is highly dependent on a future event that may or may not happen. then it may be a long time (if ever) that any requirement for payment will arise Consequently. Perhaps it would be better thought of as merely a “conditional right to receive the benefits”. McConomy Intermediate Accounting.Kieso. The amount of the deferred tax liability will depend on future taxable profits. Weygandt. there are two issues relating to the measurement and reporting of deferred tax assets:  The cash effects related to the benefits of this asset will be received sometime in the future.” and they are not single point estimates. A liability represents a present duty or responsibility that obligates the company. . perhaps the deferred tax asset arising from the use of loss carryforwards should not be recorded. the government does not owe the company this amount. As such. it could be argued that the entity should estimate the amount and timing of the obligation under each of these different outcomes. Currently. In addition. Similar issues arise in looking at deferred tax liabilities within this definition:  The amount of this liability may be paid sometime in the future. the entity controls access to the benefit and it results from past transactions or events. it should be discounted to approximate the present value of the obligation that will be met in the future. Ltd.  Also. there are a variety of different outcomes. As a result. Young. the obligation is not presently enforceable. and when these temporary differences will reverse. to what extent does the entity control the asset? In the case of loss carryforward benefits where the company has not been profitable. the right is not “controllable”. and then estimate the probability of each outcome. Eleventh Canadian Edition RA 18-6 BASIC CONCEPTS and PRINCIPLES (CONTINUED) (d) An asset provides an economic benefit to the entity. preferred measurements would use probabilities of likely outcomes to determine the best estimate of the economic resource. it should be discounted to approximate the present value of the benefit to be received. Solutions Manual 18-209 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. the amounts of the future benefits are not assured. distribution. Using this strict definition. plant and equipment and the capital cost allowance claim is always greater than the depreciation for tax purposes. For example. Consequently. Wiecek. To repurchase assets at a lower cost could also trigger recaptured CCA in some cases. Henrietta has to determine whether the business decisions are being made within a narrow objective of reducing income tax cash flows. while the proceeds received on sale of the old asset reduce the balance in the CCA Class involved. and using the mechanism described in (a) above. One would also have to question whether there is a legitimate need for these new assets.Kieso. Weygandt. and whether this is detrimental to the company as a whole. This is possible due to the tax deferral permitted by temporary differences caused by the difference in financial accounting principles and tax laws. Unauthorized copying. the company may receive a prolonged deferral of income taxes. Preconceived accounting outcomes should not drive corporate policies. The reversing point occurs when the accelerated CCA matches the straight-line rate. or transmission of this page is strictly prohibited. and the general business ethics of the company. or it is indebting itself and increasing the company’s solvency risk. Yearly CCA declines to a point where the accelerated CCA amount is lower than the depreciation expense computed under the straight-line method. Warfield. (b) The types of ethical implications related to the company’s aggressive deferral of income tax include those related to applying the tax legislation. distribution. Some companies are motivated to sell assets prior to this point to maximize the CCA benefit provided in terms of income taxes. The practice of selling-off assets before the differences reverse and replacing them with new assets means that the company has transferred the obligation to pay taxes several years into the future. As long as the company is growing. such as the double-declining balance method used for income tax purposes. Ltd. This would be demonstrated by a decrease in the effectiveness of their use of assets in declining return-on-assets and asset turnover ratios. Young. Eleventh Canadian Edition RA 18-7 OPERATING and ACCOUNTING POLICIES (a) Accelerated depreciation. for example? Solutions Manual 18-210 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. These need to be assessed by Henrietta because of the non-payment of current income taxes by the company. This is possible because. allows a company to deduct substantial capital cost allowance early in an asset’s life. McConomy Intermediate Accounting. (c) Shareholders would be harmed by Mesa’s income tax practice. In order to maintain this policy. In summary. Does this policy result in the company having a higher than necessary cost of capital. Henrietta’s professional considerations as an accountant. it is replenished with the higher cost of the replacement asset which can then start to be tax depreciated at a substantial amount. . This means that management is probably embarking on a short-term policy of improving its financial picture at the cost of a damaging cash management policy. the company has to systematically acquire new assets at a cost higher than the previously disposed assets. and is. Eleventh Canadian Edition RA 18-7 OPERATING & ACCOUNTING POLICIES (CONTINUED) (d) As an ethical accountant. Wiecek.Kieso. Henrietta should ensure that what the company is doing is not only within the letter of the law. Ltd. if specified. . Weygandt. in fact. then she needs to communicate her concerns to the highest levels of management within Mesa. Henrietta is obligated to uphold objectivity and integrity in the practice of financial reporting. is simply trying to minimize its cash income tax payments. Warfield. Young. Solutions Manual 18-211 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Such activities that are structured to be within the rules but have no bona fide business purpose can be caught under GAAR (General anti-avoidance rules). she has a duty to communicate her concerns about whether such a practice is in the best long-run interests of the company and its shareholders. could be re-assessed by the Canada Revenue Agency. or transmission of this page is strictly prohibited. which probably would not be considered illegal or unethical. distribution. McConomy Intermediate Accounting. These transactions. Current tax legislation permits taxpayers to arrange their affairs in order to pay the minimum amount of tax—when it is done within tax rules. including members of the Board and/or the Audit Committee. but also within the spirit of the legislation. Unauthorized copying. as indicated above. if considered unacceptable. If she thinks that this practice is unethical. It would appear here that Mesa Inc. Does the legislation indicate an overall objective related to the capital cost allowance system that might have precedence over the specific regulations? She should ensure that these transactions and policies would be considered acceptable by CRA. and that they would not be considered having a sole purpose of avoiding paying income taxes. in the best interests of the company. As an ethical professional accountant. Unauthorized copying. Ltd. This manual is furnished under licence and may be used only in accordance with the terms of such licence. mechanical. scanning. Ltd. Ltd. or related companies. stored in a retrieval system. recording. or transmitted in any form or by any means. or transmission of this page is strictly prohibited. Wiecek. made available on a network. electronic. used to create derivative works. . modified. or otherwise without the prior written permission of John Wiley & Sons Canada. The material provided herein may not be downloaded. Weygandt. photocopying.Kieso. The data contained in these files are protected by copyright. Warfield. Young. MMXVII II F3 Solutions Manual 18-212 Chapter 18 Copyright © 2016 John Wiley & Sons Canada. Eleventh Canadian Edition LEGAL NOTICE Copyright © 2016 by John Wiley & Sons Canada. distribution. All rights reserved. reproduced. McConomy Intermediate Accounting.