University of Guelph
ACCT 3330
Problem 18.5
The following information applies to Edward Corporation, which reports under IFRS.
● 1.Prior to 2019, taxable income and accounting income were identical.
● 2.Accounting income was $1.7 million in 2019 and $1.4 million in 2020.
● 3.On January 1, 2019, equipment costing $1 million was purchased. It is being
depre
...[Show More]
Problem 18.5
The following information applies to Edward Corporation, which reports under IFRS.
● 1.Prior to 2019, taxable income and accounting income were identical.
● 2.Accounting income was $1.7 million in 2019 and $1.4 million in 2020.
● 3.On January 1, 2019, equipment costing $1 million was purchased. It is being
depreciated on a straight-line basis over eight years for financial reporting purposes,
and is a Class 8—20% asset for tax purposes.
● 4.Tax-exempt interest income of $60,000 was received in 2020.
● 5.The tax rate is 30% for all periods.
● 6.Taxable income is expected in all future years.
● 7.Edward Corporation had 100,000 common shares outstanding throughout 2020.
Instructions
a. Calculate the amount of capital cost allowance and depreciation expense for 2019 and 2020,
and the corresponding carrying amount and undepreciated capital cost of the depreciable assets
at the end of 2019 and 2020.
b. Determine the amount of current and deferred tax expense for 2020.
c. Prepare the journal entry(ies) to record 2020 income taxes.
d. Prepare the bottom portion of Edward's 2020 income statement, beginning with the line
“Income before income tax.” Round earnings per share to the nearest cent.
e. Indicate how deferred taxes should be presented on the December 31, 2020 SFP.
f. How would your responses to parts (a) to (e) change if Edward Corporation followed the
ASPE future/deferred income taxes method?
Exercise 18.15
Zdon Inc. reports accounting income of $105,000 for 2020, its first year of operations. The
following items cause taxable income to be different than income reported on the financial
statements.
● 1.Capital cost allowance (on the tax return) is greater than depreciation on the income
statement by $16,000.
● 2.Rent revenue reported on the tax return is $24,000 higher than rent revenue reported
on the income statement.
● 3.Non-deductible fines appear as an expense of $15,000 on the income statement.
● 4.Zdon's tax rate is 30% for all years and the company expects to report taxable
income in all future years. Zdon reports under IFRS.
Instructions
a. Calculate taxable income and income tax payable for 2020.
b. Calculate any deferred tax balances at December 31, 2020.
c. Prepare the journal entries to record income taxes for 2020.
d. Prepare the income tax expense section of the income statement for 2020, beginning with the
line “Income before income tax.”
e. Reconcile the statutory and effective rates of income tax for 2020. Round rates to one decimal
place.
f. Provide the SFP presentation for any resulting deferred tax accounts at December 31, 2020.
Be specific about the classification.
g. Repeat part (f) assuming Zdon follows ASPE
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