Ignore ASPE question Thanks The accounting records of Steven Corp., a real estat
ID: 3143009 • Letter: I
Question
Ignore ASPE question Thanks
The accounting records of Steven Corp., a real estate developer, indicated income before income tax of $850,000 for its year ended December 31, 2017, and of $525,000 for the year ended December 31, 2018. The following data are also available 1. Steven Corp. pays an annual life insurance premium of $11,000 covering the top management team. The company is the named beneficiary. 2. The carrying amount of the company's property, plant, and equipment at January 1, 2017 was $1, 256,000: the UCC at that date was $998,000. Steven recorded depreciation expense of $175,000 and $180,000 in 2017 and 2018, respectively. CCA for tax purposes was $192,000 and $163, 500 for 2017 and 2018, respectively. There were no asset additions or disposals over the two-year period. 3. Steven deducted $211,000 as a restructuring charge in determining income for 2016. At December 31, 2016, an accrued liability of $199, 500 remained outstanding relative to the restructuring, which was expected to be completed in the next fiscal year. This expense is deductible for tax purposes, but only as the actual costs are incurred and paid for. The actual restructuring of operations took place in 2017 and 2018, with the liability reduced to $68,000 at the end of 2017 and to $0 at the end of 2018. 4. In 2017, property held for development was sold and a profit of $52,000 was recognized in income. Because the sale was made with delayed payment terms, the profit is taxable only as Steven receives payments from the purchaser. A 10% down payment was received in 2017, with the remaining 90% expected in equal amounts over following three years. 5. Non-taxable dividends of $3, 250 in 2017 and of $3, 500 in 2018 were received from taxable Canadian corporations. 6. In addition to the income before income tax identified above, Steven reported a before-tax gain on discontinued operations of $18, 800 in 2017 7. A 30% rate of tax has been in effect since 2015. Steven Corp. follows IFRS Instructions (a) Determine the balance of any deferred tax asset or liability accounts at December 31, 2016, 2017, and 2018. (b) Determine 2017 and 2018 taxable income and current tax expense. (c) Prepare the journal entries to record current and deferred tax expense for 2017 and 2018. (d) Identify how the Deferred Tax Asset or Deferred Tax Liability account(s) will be reported on the December 31, 2017 and 2018 statements of financial position. (e) Prepare partial income statements for the years ended December 31, 2017 and 2018, beginning with the line "Income from continuing operations before income tax." (f) How would your response to parts (a) to (e) change if Steven Corp. reported under ASPE?Explanation / Answer
(a)
PP&E
Carrying amount
UCC
Difference
Tax 30%
Future Tax
Bal. Dec. 31, 2016
$ 1,256,000
$ 998,000
$ (258,000)
$ (77,400)
Liability
For 2017
175,000
192,000
(17,000)
(5,100)
Bal. Dec. 31, 2017
1,081,000
806,000
(275,000)
(82,500)
Liability
For 2018
180,000
163,500
16,500
4,950
Bal. Dec. 31, 2018
$ 901,000
$ 642,500
$ (258,500)
$ (77550)
Liability
Restructuring Charges
Accrued Liability
Tax basis
Difference
Tax 30%
Future Tax
Bal. Dec. 31, 2016
$ (199,500)
$ -0-
$199,500
$59,850
Asset
For 2017
131,500
-0-
(131,500)
(39,450)
Bal. Dec. 31, 2017
(68,000)
-0-
68,000
20,400
Asset
For 2018
68,000
-0-
(68,000)
(20,400)
Bal. Dec. 31, 2018
$-0-
$ -0-
$ -0-
$ -0-
Profit on Property Sale
Deferred G/P deducted from A/R
Deferred Profit for Tax
Difference
Tax 30%
Future Tax
Bal. Dec. 31, 2016
$ -0-
-0-
-0-
-0-
For 2017
-0-
$ 46,800
$ (46,800)
$ (14,040)
Bal. Dec. 31, 2017
-0-
46,800
(46,800)
(14,040)
Liability
For 2018
-0-
(15,600)
15,600
4,680
Bal. Dec. 31, 2018
-0-
$ 31,200
$ (31,200)
$ (9,360)
Liability
(b)
Continuing operations:
2017
2018
Accounting income
$850,000
$525,000
Permanent differences:
Nondeductible life insurance
11,000
11,000
Nontaxable dividends
(3,250)
(3,500)
857,750
532,500
Reversing differences:
CCA & depreciation
(17,000)
16,500
Restructuring charges
(131,500)
(68,000)
Profit on property sale
(46,800)
15,600
Taxable income
662,450
496,600
Current income taxes – 30%
$198,735
$148,980
Discontinued operations:
Accounting income
$ 18,800
$0
Permanent differences
0
0
Reversing differences
0
0
Taxable income
18,800
0
Current income taxes – 30%
$ 5,640
$0
(c) December 31, 2017
Current Income Tax Expense................ 198,735
Income Tax Expense – Discontinued Operations 5,640
Income Tax Payable ................... 204,375
Future Income Tax Expense................. 58,590
Future Income Tax Liability....... 58,590
December 31, 2018
Current Income Tax Expense.............. 148,980
Income Tax Payable ($495,350 X .30). 148,980
Future Income Tax Expense............... 10,770
Future Income Tax Liability......... 10,770
(d)
The following presentation is based on the assumption that the Account Receivable for the property sold in 2017 is all included in current assets. If the company reported part of it in non-current assets, 2/3 of the related future income tax liability in 2017 and 1/2 of the related future income tax liability in 2018 would have to be reported as long-term.
Balance sheet 2017
Current assets:
Future tax asset ($20,400 – $14,040) $6,360
Non-current liabilities:
Future tax liability 82,500
Balance sheet 2018
Current liability:
Future tax liability $9,360
Non-current liabilities:
Future tax liability 77,550
Under PE GAAP, future tax assets and future tax liabilities are segregated into current and non-current categories. 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.
(e)
Income Statement – 2017
Income from continuing operations before income taxes
$850,000
Income taxes
Current income taxes
$198,735
Future income taxes
58,590
257,325
Income from continuing operations
592,675
Discontinued operations
Gain on disposal of operations
18,800
Less applicable taxes
5,640
13,160
Net income
$605,835
Income Statement – 2018
Income before income taxes
$525,000
Income taxes
Current income taxes
$ 148,980
Future income taxes
10,770
159,750
Net income
$365,250
ALL THE BeSt DeAr................................ RATE THE ANSWER.............. plZZZZZZZZZ
PP&E
Carrying amount
UCC
Difference
Tax 30%
Future Tax
Bal. Dec. 31, 2016
$ 1,256,000
$ 998,000
$ (258,000)
$ (77,400)
Liability
For 2017
175,000
192,000
(17,000)
(5,100)
Bal. Dec. 31, 2017
1,081,000
806,000
(275,000)
(82,500)
Liability
For 2018
180,000
163,500
16,500
4,950
Bal. Dec. 31, 2018
$ 901,000
$ 642,500
$ (258,500)
$ (77550)
Liability
Restructuring Charges
Accrued Liability
Tax basis
Difference
Tax 30%
Future Tax
Bal. Dec. 31, 2016
$ (199,500)
$ -0-
$199,500
$59,850
Asset
For 2017
131,500
-0-
(131,500)
(39,450)
Bal. Dec. 31, 2017
(68,000)
-0-
68,000
20,400
Asset
For 2018
68,000
-0-
(68,000)
(20,400)
Bal. Dec. 31, 2018
$-0-
$ -0-
$ -0-
$ -0-