financial accounting: income tax Sheridan Ltd. in its first year of operations,
ID: 2578755 • Letter: F
Question
financial accounting: income tax
Sheridan Ltd. in its first year of operations, reported the following information a) Loss (accou nting loss) before tax for the year was $900,000 and the tax rate was 38%; b) Depreciation was $120,000 and CCA was $67,000. Net book value at year-end was $840,000 while UCC was $893,000 ranty program generated an estimated cost (expense) on the statement of profit and loss of c) The war $257,000 but the cash paid out was $174,000. The $83,000 warranty liability resulting from this was classified as current. On the income tax return only the amount paid is deductible d) Entertainment expenses of $55,000 were included in the statement of profit and loss but were half deductible for tax purposes e) Management believes that is likely that future taxable income will be sufficient to comple this first year loss In the second year of operations, Sheridan Ltd. reported the following information a) Income before income tax for the year was S 1,750,000 and the tax rate was 40% b) Depreciation was $120,000 and the CCA was $370,000. Net book value at year end was $720,000 while UCC was $523,000 d) The estimated costs of the warranty program were $287,000 and the cash paid out was $242,000. The warranty liability had a balance of $128,000 and classified as current Required: Prepare the journal entries to record income tax expense in the first and second year of operations. Record each timing difference separately. The second year tax years) was enacted in the first year Prepare the income statement excerpt (from net income or loss before taxes) and show the tax provision for each year a) rate (and for future b) e Sheridan uses IFRS. What is the balance of the future tax account asset or liability at the end of the second year? How would it be classified if they used ASPE?Explanation / Answer
Answer: 1.
Working Note:
Journal entry
For depreciation
(a) Depreciation A/c Dr. 67000
To Assets A/c 67000
(Being Depreciation charged)
(b) Profit and loss A/c Dr. 67000
To Depreciation A/c 67000
(Being Depereciation write-off)
Since There is loss no Tax Would be levied same would be set-off with next year Profit
2nd Year
Working Note:
Journal Entry
(a) Provision for Tax A/c Dr. 433230
to Tax Payable A/c 433230
(Being Tax payable recorded in the Books)
(b) Profit and Loss A/c Dr. 433230
To Provision for Tax A/c 433230
(Being Tax payable write-off)
Answer: 3
As per IFRS the future tax libilites will be (after Set-off) 433230
Calculation Profit for Tax purpose Particular Amount Profit as per Book -900000 Add: Warranty program allowable on paymnet basis 174000 (257000-83000) = 174000 Add: Entertainment expenses allowable Half only 27500 (55000/2)= 27500 Add: CCA will be claim in next year 67000 Net Profi and Loss for Tax -631500 Tax Amount -239970Related Questions
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