Shaddick Corp. began its 2011 fiscal year with a debit

Shaddick Corp. began its 2011 fiscal year with a debit balance of $11,250 in its Income Taxes Receivable account. During the year, the company made quarterly income tax instalment payments of $8,100 each. In early June, a cheque was received from the CRA for Shaddick's overpayment of 2010 taxes. The refunded amount was exactly as Shaddick had calculated it would be on its 2010 income tax return. On completion of the 2011 income tax return, it was determined that Shaddick's income taxes based on 2011 income were $37,800.

Instructions

(a) Prepare all journal entries that are necessary to record the 2011 transactions and events.

(b) Indicate how the income taxes will be reported on Shaddick's December 31, 2011 balance sheet.

(c) Assume that the cheque from the CRA in early June is for $2,750. The difference arose because of calculation errors on Shaddick's tax return. How would the difference be accounted for and where would it be shown on Shaddick's financial statements?

(a)	Mar. 31	Income Tax Expense			8,100
		Cash				8,100
	June 1	Cash			11,250
		Income Taxes Receivable				11,250
	June 30	Income Tax Expense			8,100
		Cash				8,100
	Sep. 30	Income Tax Expense			8,100
		Cash				8,100
	Dec. 31	Income Tax Expense			8,100
		Cash				8,100
	Dec. 31	Income Tax Expense			5,400
		Income Taxes Payable				5,400
		Estimated income taxes		$37,800
		Income tax installments paid ($8,100 X 4)	(32,400)
		Income taxes payable		$  5,400

(b)  The income taxes payable will be shown as a current liability.

(c)	June 1	Cash	2,750
		Retained Earnings	8,500
		Income Taxes Receivable		11,250

The error relates to a prior period and should be treated as an adjustment to opening retained earnings on the statement of retained earnings or statement of changes in shareholders’ equity.