Reference no: EM132903566
Question - Activity 1 - Scott and Andrea are meeting with their Financial Planner today to discuss the maturity of Andrea's LRSP. Andrea is turning 71 in October of this year and Scott is turning 68 in December of this year. They both have pensions from their employers and these combined with the government benefits are more than sufficient to maintain their lifestyle. They do not have any other savings beyond their pensions and the LRSP. You are the Financial Planner meeting with the couple and you will need to answer the following questions that they have
Explain the options for the maturing LRSP What option would you recommend? Why?
Explain how the withdrawals work and the options that they have? What would you recommend?
What can they do with the money that they withdraw from the plan?
Activity 2 - You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company's income tax position based on the following:
Pretax accounting income was $64 million and taxable income was $11 million for the year ended December 31, 2021.
The difference was due to three items:
Tax depreciation exceeds book depreciation by $50 million in 2021 for the business complex acquired that year. This amount is scheduled to be $70 million in 2022 and to reverse as ($60 million) and ($60 million) in 2023 and 2024, respectively.
Insurance of $9 million was paid in 2021 for 2022 coverage.
A $6 million loss contingency was accrued in 2021, to be paid in 2023.
No temporary differences existed at the beginning of 2021.
The tax rate is 25%.
Required -
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. Assume the enacted federal income tax law specifies that the tax rate will change from 25% to 20% in 2023. When scheduling the reversal of the depreciation difference, you were uncertain as to how to deal with the fact that the difference will continue to originate in 2022 before reversing the next two years. Upon consulting PricewaterhouseCoopers' Comperio database, you found:
.441 Depreciable and amortizable assets
Only the reversals of the temporary difference at the balance sheet date would be scheduled. Future originations are not considered in determining the reversal pattern of temporary differences for depreciable assets. FAS 109 [FASB ASC 740-Income Taxes] is silent as to how the balance sheet date temporary differences are deemed to reverse, but the FIFO pattern is intended.
You interpret that to mean, when future taxable amounts are being scheduled, and a portion of a temporary difference has yet to originate, only the reversals of the temporary difference at the balance sheet date can be scheduled and multiplied by the tax rate that will be in effect when the difference reverses. Future originations (like the depreciation difference the second year) are not considered when determining the timing of the reversal. For the existing temporary difference, it is assumed that the difference will reverse the first year the difference begins reversing.
Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.