Reference no: EM132490707
Point 1: Cola Ltd., a company that follows Ifrs, is in the process of preparing its financial statements for the year ending December 31, 2019. Pertinent information follows: Accounting income before income taxes for 2019 $1,458,565 Depreciation expense for property, plant, and equipment for 2019 $160,542 Capital cost allowance to be claimed on Cola's 2019 income tax return $260,922 Book value of property, plant, and equipment at December 31, 2018 $1,204,242 Underappreciated capital cost of property, plant, and equipment at Dec. 31, 2018 $1,109,899 Assume that there were no additions or disposals for property, plant, and equipment during 2019. The company sells a product with a 2-year assurance warranty.
Information pertaining to this warranty follows:
Estimated warranty cost per unit $135
Balance in Warranty Liability account at December 31, 2018 $404,932
Number of units of product sold in 2019 5,055
Warranty costs paid in 2019 $283,458
Point 2: Accounting income before tax for the 2019 year includes entertainment expenses of $44,867. Note that only 50% of the entertainment expenses incurred can be deducted for income tax purposes. On December 31, 2019, the company received three months of rent revenue in advance, totaling $105,000. This revenue is reported as unearned revenue for accounting purposes, but must be reported as 2019 revenue for income tax purposes.
Required:
Question a) Calculate taxable income for the 2019 year.
Question b) Determine the amounts that will appear on the December 31, 2019 statement of financial position for deferred taxes. Assume that Cola is taxed at a rate of 35%, and that the company had a deferred tax asset of $108,706 at December 31, 2018.
Question c) Prepare the journal entries to record income taxes for 2019.
Question d) Prepare the income tax expense section of the income statement for 2019, beginning with the line "Income before income taxes".