Sports Highlights Ltd. is a publisher of a professional sports magazine. The company reported the following on its December 31, 2021 balance sheet:              Income tax receivable             $16,250            Deferred tax asset                   $38,400 The net deferred tax asset relates to two temporary differences: subscription revenue and depreciation/CCA.   The company receives subscription payments in advance on the magazine it publishes, the amounts are taxed immediately when received but for accounting purposes are recorded as revenue as they are earned over the subscription period.   On December 31, 2021, the balance in the unearned revenue account was $247,000 and it was expected to be earned as follows:                                        2022            $95,000                                        2023              80,000                                        2024              72,000                                                           $247,000   The company’s printing equipment is currently being depreciated on a straight-line basis and the carrying amount (ie: book value) of the equipment on December 31, 2021 was $357,000.   For tax purposes the equipment is depreciated on the declining balance method using a 20% rate and the tax base (undepreciated capital cost) on December 31, 2021, was $238,000. (Declining balance applies the CCA rate to the undepreciated capital cost at the beginning of the year for that years’ CCA claim).   The income tax receivable resulted from a taxable loss suffered in 2021 that was fully carried back to previous taxation years-there is no loss carryforward. The tax rate in effect on December 31, 2021 was 30%.   In 2022, the company reported the following:                                         Net income before tax                                                               $ 500,000                                       Tax refund received                                                                        16,250                                       Depreciation expense                                                                     59,000                                       Capital cost allowance                                            the maximum allowed                                       Rent received from renting out equipment starting in 2023            14,000                                       New subscriptions received in the year, unearned at year-end      68,000                                       Fines paid due to contamination of a factory site                                                (not/never tax deductible)                                                      12,000                                       Dividends received from an investment that are non-taxable          7,500       Required:  Determine the December 31, 2022 balance in deferred tax asset or liability related to each timing difference as well as the current tax payable. Discuss whether the amounts are shown as current or non-current classification.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Sports Highlights Ltd. is a publisher of a professional sports magazine. The company reported the following on its December 31, 2021 balance sheet:

 

           Income tax receivable             $16,250

           Deferred tax asset                   $38,400

The net deferred tax asset relates to two temporary differences: subscription revenue and depreciation/CCA.

 

The company receives subscription payments in advance on the magazine it publishes, the amounts are taxed immediately when received but for accounting purposes are recorded as revenue as they are earned over the subscription period.

 

On December 31, 2021, the balance in the unearned revenue account was $247,000 and it was expected to be earned as follows:

                                       2022            $95,000

                                       2023              80,000

                                       2024              72,000

                                                          $247,000

 

The company’s printing equipment is currently being depreciated on a straight-line basis and the carrying amount (ie: book value) of the equipment on December 31, 2021 was $357,000.

 

For tax purposes the equipment is depreciated on the declining balance method using a 20% rate and the tax base (undepreciated capital cost) on December 31, 2021, was $238,000. (Declining balance applies the CCA rate to the undepreciated capital cost at the beginning of the year for that years’ CCA claim).

 

The income tax receivable resulted from a taxable loss suffered in 2021 that was fully carried back to previous taxation years-there is no loss carryforward.

The tax rate in effect on December 31, 2021 was 30%.

 

In 2022, the company reported the following:

 

                                      Net income before tax                                                               $ 500,000

                                      Tax refund received                                                                        16,250

                                      Depreciation expense                                                                     59,000

                                      Capital cost allowance                                            the maximum allowed

                                      Rent received from renting out equipment starting in 2023            14,000

                                      New subscriptions received in the year, unearned at year-end      68,000

                                      Fines paid due to contamination of a factory site

                                               (not/never tax deductible)                                                      12,000

                                      Dividends received from an investment that are non-taxable          7,500

 

 

 

Required:

 Determine the December 31, 2022 balance in deferred tax asset or liability related to each timing difference as well as the current tax payable. Discuss whether the amounts are shown as current or non-current classification.

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