Reference no: EM133027723
Question - Bridgeport Limited had investments in securities on its statement of financial position for the first time at the end of its fiscal year ended December 31, 2020. Bridgeport reports under IFRS and its investments in securities are to be accounted for at fair value through net income. During 2020, realized losses and gains on the trading of shares and bonds resulted in investment income, which is fully taxable in the year. Bridgeport also accrued unrealized gains at December 31, 2020, which are not taxable until the investment securities are sold. The portfolio of trading securities had an original cost of $314,850 and a fair value on December 31, 2020, of $318,950. The entry recorded by Bridgeport on December 31, 2020 was as follows:
FV-NI Investments 4,100
Investment Income or Loss 4,100
Following the year ended December 31, 2020, Bridgeport continued to actively trade its securities investments until the end of its 2021 fiscal year, when it was forced to sell several of them at a loss, because of the need for cash for operations. By December 31, 2021, the portfolio of investments contained a single investment in shares, which was purchased in November 2021. Bridgeport Limited had paid $43,600 for these remaining shares. At December 31, 2021, the shares' market value was $40,600. Income before income tax for Bridgeport was $130,500 for the year ended December 31, 2021. There are no other permanent or reversing/timing differences in arriving at the taxable income for Bridgeport Limited for the fiscal year ended December 31, 2021. The enacted tax rate for 2021 and future years is 30%.
(a) Prepare the necessary journal entry for Bridgeport Limited to accrue the unrealized loss on its securities investments.
(b) Calculate the deferred tax balance at December 31, 2021 and Calculate the current tax expense for the year ended December 31, 2021.
(c) Prepare the journal entries to record income taxes for 2021. Assume that there have been no entries to the ending balances of deferred taxes reported at December 31, 2020. and the income statement and SFP presetation for 2021
(d) Prepare the journal entries to record income tax for 2021. Assume that, late in 2021, the income tax rate changed to 25% for 2022 and subsequent years.
(e) Provide the presentation for the statement of financial position for any resulting deferred tax accounts at December 31, 2021. Assume that Bridgeport reports under the ASPE future/deferred income taxes method and has chosen the fair value through net income model to account for its securities investments. Assume the tax rate is 30%.
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