|
Fair value of plan assets
|
591,250
|
802,000
|
|
Fair value of pension obligations
|
(724,500)
|
(865,000)
|
|
Net defined benefit asset/obligation
|
(133,250)
|
(63,000)
|
|
Net defined benefit liability, beginning of year
|
180,000
|
133,250
|
|
Pension expense
|
96,750
|
97,325
|
|
Funding
|
(100,000)
|
(115,000)
|
|
Fair value adjustment (through OCI)
|
(43,500)
|
(52,575)
|
|
Net defined benefit liability, end of year
|
133,250
|
63,000
|
Question 1:-
Sigma Services Inc. has provided you with the following information related to its defined benefit pension plan for the year 2015. The terms of the plan, agreed with the employee's union and included in the union contract, specify that any pension surplus will be used to fund future cost of living increases to pensioners receiving pensions under the plan.
Accrued benefit obligation, January 1, 2015 $1,110,000
Fair value of plan assets, January 1, 2015 1,030,000
Current service cost for 2015 135,000
Contributions to plan in 2015 150,000
Pensions paid during 2015 100,000
Accrued benefit obligation, December 31, 2015 1,210,000
Fair value of plan assets, December 31, 2015 1,230,000
Discount rate and expected return on plan assets 5%
The current service cost is recognized evenly over the year. Pensions are paid evenly over the year. Contributions are made in two equal instalments on June 30 and December 31.
Required:
Prepare all journal entries related to this pension plan for 2015. Show each component of the income statement items as a separate line item in your journal entries.
Question 2:-
The following information is available with respect to Iota Inc. for the years 2014 and 2015:
2014 2015
Net income (loss) before income taxes ($600,000) $ 750,000
Warranty expense for the year 30,000 60,000
Warranty payments during the year 20,000 40,000
Amortization expense 80,000 80,000
Capital cost allowance claimed 100,000 90,000
Meals and entertainment expenses 40,000 40,000
Tax rate for the year 32% 30%
At December 31, 2013, Iota Inc. had a deferred tax asset of $6,600 related to its warranty provision on that date of $20,000 and had a deferred income tax liability of $49,500 related to the difference between the carrying value of its amortizable capital assets of $800,000 and its undepreciated capital cost for income tax purposes of $650,000.
Warranty costs are deductible for income tax purposes only when paid. Only 50% of the cost of meals and entertainment may be deducted in arriving at taxable income.
The company reported taxable income during the years 2010 to 2013 of $50,000 each year and paid tax at 33% in each of those years. Tax rates are not known until the year to which they apply.
The management of Iota Inc. believe that they will be able to utilize any tax losses before they expire.
Required:
a) Prepare the journal entries necessary to record the company's income tax expense for 2014 and 2015.
b) Prepare a reconciliation between the income tax rate applied to the accounting income before tax and the income tax expense for 2015.
QUESTION 3:-
The following information is available with respect to the income tax accounts of Lamanai Limited as at December 31, 2012:
Tax loss carried forward from 2010 $400,000
Net book value of amortizable capital assets 900,000
Undepreciated capital cost of amortizable capital assets 800,000
Deferred income tax asset (loss-carry-forward) 140,000
Deferred income tax liability (capital assets) 35,000
The following information is available with respect to the company's 2013 operations:
Accounting income before income taxes $450,000
Amortization expense 140,000
Capital cost allowance claimed 100,000
Non-taxable dividend income 80,000
Meals and entertainment expense 40,000
(Only 50% of the meals and entertainment expenses are deductible in determining taxable income.)
The income tax rate for 2013 was 33%.
Required:
a) Calculate the company's income tax expense for 2013, showing separately the current and deferred income tax amounts.
b) Prepare a reconciliation between the accounting income before income taxes at the statutory tax rate for the year and the income tax expense reported in the company's income statement for the year.
QUESTION 4:-
Toledo Corporation had the following tax accounts in its trial balance at December 31, 2013:
DR. CR.
Current income taxes recoverable $ 52,000
Deferred income tax asset (loss carry forward) 160,000
Deferred income tax asset (warranty provision) 40,000
Deferred income tax liability (capital assets) $220,000
Deferred income tax liability (instalment sales) 10,000
The tax loss carry forward is expected to be used in full in 2014. The warranty provisions extend for two years; half are expected to be paid in 2014 and the balance in 2015. The timing difference relating to the capital assets is not expected to reverse for a number of years. The timing difference for the instalment sales revenue is expected to reverse in 2014.
All income taxes are payable to the Canada Revenue Agency. Tax rates have been stable for the past several years and no changes in rates have been announced.
Required:
a) Assume that Toledo Corporation must comply with the International Financial Reporting Standards and wishes to off-set the tax accounts to the extent permitted, showing the fewest possible balances on their balance sheet at December 31, 2013. Indicate the accounts and balances that will appear in their 2013 balance sheet, stating which will be shown as current and which will be shown as long-term.
b) Assume that Toledo Corporation must comply with the Canadian Accounting Standards for Private Enterprises and has elected to use accrual accounting for income taxes and wishes to off-set the tax accounts to the extent permitted, showing the fewest possible balances on their balance sheet at December 31, 2013. Indicate the accounts and balances that will appear in their 2013 balance sheet, stating which will be shown as current and which will be shown as long-term.
Attachment:- Solutions-to-In-Class-Discussion-Questions-on-Income-Taxes.rar