Jordan
Corporation reports under IFRS. The following information applies to Jordan
Corporation.
1.
Prior to 2010, taxable income and accounting income were identical.
2.
Accounting income was $1.7 million in 2010 and $1.4 million in 2011.
3.
On January 1, 2010, 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 2011.
5.
The tax rate is 35% for all periods.
6.
Taxable income is expected in all future years.
7.
Jordan Corporation had 100,000 common shares outstanding throughout 2011.
Instructions
(a)
Calculate the amount of capital cost allowance and depreciation expense for
2008 and 2011, and the corresponding carrying amount and undepreciated capital
cost of the depreciable assets at the end of 2010 and 2011.
(b)
Determine the amount of current and future income tax expense for 2011.
(c)
Prepare the journal entry(ies) to record 2011 income taxes.
(d)
Prepare the bottom portion of Jordan's 2011 income statement, beginning with
the line "Income before income taxes." (e) Indicate how future income
taxes should be presented on the December 31, 2011 balance sheet.
(f)
How would your responses to (d) and (e) change if Jordan Corporation followed
the PE GAAP future income taxes method?
(a)
Basic
Calculations of Capital Cost Allowance, Depreciation and Balances:
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C-B
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(A)
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(B)
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(A – B)
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(C)
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(A – C)
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Reversing
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Year
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Base
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CCA
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UCC
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Deprec.
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Carrying
Amount
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Difference
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2010
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$1,000,000
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X 20 % X .5
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$100,000
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$ 900,000
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$125,000
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$875,000
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$25,000
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2011
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900,000
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X 20 %
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180,000
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720,000
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125,000
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750,000
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(55,000)
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(b)
2011
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Future
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PE (GAAP)
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Balance Sheet
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(Taxable)
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Tax
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Current
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Account
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Carrying
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Tax
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Temporary
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Tax
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Asset
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or Long-
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Dec. 31, 2011
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Amount
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Basis
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Differences
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Rate
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(Liability)
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Term
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Property, plant & equip.
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$750,000
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$720,000
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($30,000)
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35%
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($10,500)
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LT
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Future income tax
liability, December 31, 2011
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(10,500)
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Future income tax asset before
adjustment ($25,000 X 35%)
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8,750
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Incr. in future income tax
liability and future income tax expense for 2011
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($19,250)
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Calculation
of current income tax expense:
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Accounting income
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$ 1,400,000
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Permanent
difference – tax exempt interest
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(60,000)
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1,340,000
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Reversing
difference - [part (a)]
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55,000
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Taxable
income on regular operations
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1,285,000
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Income tax
expense and payable @ 35 %
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$ 449,750
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(c)
Current
Income Tax Expense.......... 449,750
Income
Tax Payable.............. 449,750
Future
Income Tax Expense........... 19,250
Future
Income Tax Liability..... 10,500 *
Future
Income Tax Asset......... 8,750*
*
Alternately
Future
Income Tax Asset/Liability 19,250
(d) Income before income taxes $1,400,000
Income tax
expense
Current $449,750
Future 19,250 469,000
Net income $ 931,000
Earnings per share:
Net Income
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$9.31
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(e) Net future income
tax liability at December 31, 2011.
(See part
(b))
Long-term liabilities
Future income tax liability $10,500
(f) Balance sheet
disclosure would be the same under PE GAAP – FIT method as under IFRS since all
temporary differences relate to differences between the tax basis and carrying
amount of property, plant and equipment. The future income tax liability would
be included with non-current liabilities.
