Question - Migor Company (MC)-a Canadian company whose shares trade on a Canadian stock exchange-designs and builds custom-ordered precision machinery. MC is a publicly accountable enterprise adhering to IFRS. Its 2013 income statement will report "Income before income taxes" of $1,800,000. The currently enacted income tax rate 40%, but the government has passed legislation reducing the rate to 30% starting January 1, 2015. MC has a calendar fiscal year.
Early in 2014, MC's accountant developed the following list of differences relating to 2013 between the company's financial accounting income and its taxable income (MC began operations in early 2013):
1. The company sells its custom products on an installment contract basis. In 2013, MC decided, for tax return purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2013. This led to a $480,000 difference between book and taxable incomes for 2013. Future collections of installment receivables are expected to result in taxable amounts of $240,000 in each of 2014 and 2015.
2. The company depreciates all of its property, plant and equipment using CCA for tax filing purposes and straight-line for accounting purposes. This resulted in $84,000 excess CCA over accounting depreciation. This difference is expected to reverse equally over the three year period from 2014-2016.
3. On July 1, 2013, MC leased an unused part of its building to Raquin Ltd. on a two-year lease. The monthly rent is $60,000, and Raquin paid the first year's rental in advance (July 1, 2013 to June 30, 2014). MC reported the entire amount received on its 2013 tax return. This resulted in a $360,000 difference between book and taxable incomes. For financial reporting purposes, the arrangement is treated as an operating lease agreement.
4. MC sold $150,000 of bonds issued by the Government of Canada at a gain of $36,000, which was included as other income in its income statement. A taxable capital gain of $18,000 was reported for tax purposes.
5. In 2013, MC insured the lives of its chief executives. The premiums paid were $24,000 and this amount was shown as an expense on the income statement. However, this amount was not deductible for tax purposes.
Except for those items mentioned above, there are no other differences between book and taxable incomes.
REQUIRED:
(a) Calculate the income tax payable for 2013.
(b) Prepare a schedule of future taxable/deductible amounts at the end of 2013.
(c) Prepare a schedule of the deferred tax asset and deferred tax liability at the end of 2013.
(d) Calculate the net deferred tax expense (benefit) for 2013.
(e) Prepare the journal entry (entries) recording income tax expense, income tax payable, and deferred income taxes for 2013.
(f) How would the income tax expense and any deferred taxes be disclosed on the financial statements for 2013?