ACC2363_E 18-8

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Algonquin College *

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2363

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Accounting

Date

Nov 24, 2024

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xlsx

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Two Reversing Differences, Future Taxable and Deductible Amounts, No Beginning Deferred It is estimated that the project will be completed over a three-year period starting in June 2023. By its first fiscal year end, the accounts related to the contract had the following balances: Accounts Receivable Contract Asset/Liability (net of billings to date of $400,000) Revenue from Long-Term Contracts Construction Expenses The accounts related to the equipment that Sayaka purchased to construct the road had the following Equipment Accumulated Depreciation—Equipment Undepreciated Capital Cost Sayaka’s tax rate is 25% for 2023 and subsequent years. Income before income tax for the year ended Required: a) Calculate the deferred tax asset or liability balances at December 31, 2023. Stmt of Fin. Pos. Account Tax Base Tax Rate PP&E $980,000 $930,000 $50,000 25% $ 12,500 0 Contract Asset/Liability* (50,000) 100,000 (150,000) 25% (37,500) Deferred tax liability, December 31, 2023 (25,000) Deferred tax liability before adjustment 0 Incr. in deferred tax liability, and deferred tax expense for 2023 $(25,000) *For the completed-contract method, the construction asset/liability account reports only con costs excluding any gross profit recognized under the percentage-of-completion method, net o Completed contract is used for income tax returns. $100,000 - $500,000 + $350,000 = ($50,00 b) Calculate taxable income and income tax payable for 2023. Accounting income Reversing differences: Sayaka Tar & Gravel Ltd. operates a road construction business. In its first year of operations, the com Sayaka uses the percentage-of-completion method of recognizing revenue on its long-term constructi For tax purposes, and in order to postpone the tax on such revenue for as long as possible, Sayaka use Carrying Amount (Taxable) Temperory Difference Deferred Tax Asset (Liability)

Property, plant, and equipment: Depreciation expense ($1,100,000 - $930,000) 170,000 Capital cost allowance ($1,100,000 - $980,000) (120,000) Contract Asset/Liability: Gross profit – Percentage completion ($500,000 – $350,000) (150,000) Gross profit – Completed contract method 0 Taxable income Current income taxes at 25% 95,000 * 25% c) Prepare the journal entries to record income taxes for 2023. Debit Credit Current Tax Expense 23,750 Income Tax Payable 23,750 To record current tax expense. Debit Credit Deferred Tax Expense 25,000 Deferred Tax Liability 25,000 To record deferred tax expense. d) Prepare the income statement for 2023, beginning with the line “Income before income tax.” Comparative Income Statement(Partial) For the Year Ended Dec 31 2023 Income before Income Tax $ 195,000 Income Tax Expense-Current 23,750 Income Tax Expense-Deferred 25,000 - 48,750 Net Income / (Loss) $ 146,250 e) Provide the SFP presentation for any resulting deferred tax balance sheet accounts at Decem Sayaka Tar & Gravel Ltd. Statement of Financial Position (Partial) December 31 2023 Long-Term Liabilities Deferred Tax Liability $ 25,000

IFRS require that all deferred tax assets and liabilities bereported as non-current items on a c f) Repeat the balance sheet presentation in part (e) assuming Sayaka follows ASPE Sayaka Tar & Gravel Ltd. (Partial) Balance Sheet December 31 2023 Non-current assets Future Tax Asset $ 12,500 Current liabilities Future tax liability 37,500

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d Taxes, One Tax Rate $320,000 100,000 500,000 350,000 g balances at the end of the first fiscal year ended December 31, 2023, for accounting and tax purp $1,100,000 170,000 980,000 December 31, 2023, was $195,000. Sayaka reports under IFRS. For ASPE Curr/LT LT Carrying Amount = $1,100,000 - $170,000 = $93 C nstruction of billings. 00) 195,000 mpany won a contract to build a road for the municipality of Cochrane West. tion contracts. es the completed-contract method allowed by the CRA.