Question

The accounting records of Whispering Winds Corp., a real estate developer, indicated income before income tax of $856,000 for its year ended December 31, 2020, and of $560,000 for the year ended December 31, 2021. The following data are also available.

1.		Whispering Winds Corp. pays an annual life insurance premium of $11,200 covering the top management team. The company is the named beneficiary.
2.		The carrying amount of the company’s property, plant, and equipment at January 1, 2020 was $1,250,000, and the UCC at that date was $993,000. Whispering Winds recorded depreciation expense of $173,000 and $189,000 in 2020 and 2021, respectively. CCA for tax purposes was $185,000 and $164,500 for 2020 and 2021, respectively. There were no asset additions or disposals over the two-year period.
3.		Whispering Winds deducted $211,000 as a restructuring charge in determining income for 2019. At December 31, 2019, an accrued liability of $198,500 remained outstanding relative to the restructuring, which was expected to be completed in the next fiscal year. This expense is deductible for tax purposes, but only as the actual costs are incurred and paid for. The actual restructuring of operations took place in 2020 and 2021, with the liability reduced to $66,000 at the end of 2020 and to $0 at the end of 2021.
4.		In 2020, property held for development was sold and a profit of $63,000 was recognized in income. Because the sale was made with delayed payment terms, the profit is taxable only as Whispering Winds receives payments from the purchaser. A 10% down payment was received in 2020, with the remaining 90% expected in equal amounts over the following three years.
5.		Non-taxable dividends of $3,250 in 2020 and of $3,570 in 2021 were received from taxable Canadian corporations.
6.		In addition to the income before income tax identified above, Whispering Winds reported a before-tax gain on discontinued operations of $18,200 in 2020.
7.		A 30% rate of tax has been in effect since 2018.

Whispering Winds Corp. follows IFRS.

Part 1

Determine the balance of any deferred tax asset or liability accounts at December 31, 2019, 2020, and 2021. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

2019

2020

2021

PP&E

No balanceLiabilityAsset

No balanceLiabilityAsset

LiabilityNo balanceAsset

Restructuring Charges

No balanceAssetLiability

No balanceAssetLiability

LiabilityNo balanceAsset

Profit on Property Sale

AssetLiabilityNo balance

Answer 1

For year 2021

a) Total reversal amount = 35100 + 36300 + 44300 = 115,700

Taxable income =Pre-tax financial income -Future taxable amount

                     = 249400-115700

                      = 133,700

Income taxes payable =Taxable income *tax rate

                      = 133,700*30%

                    = 40,110

b)

Date	Account title	Debit	credit
December 31 ,2020	Income tax expense (249400*30%)	74,820
	Deferred tax liability		34,710
	Income tax payable		40,110

#Out of deferred tax liability, 35,100*30% = 10,530 will be classified as current (as same is payable within one year from reporting period) and rest will be classified as non-current:34,710-10530= 24,180

c)

Income before income tax	249,400
less:Income tax expense	(74,820)
Net income	174,580

For year 2022

a) Total reversal amount = 35100 + 36300 + 44300 = 115,700

Taxable income =Pre-tax financial income -Future taxable amount

                     = 209,400-115700

                      = 93,700

Income taxes payable =Taxable income *tax rate

                      = 93,700*30%

                    = 28,110

b)

Date	Account title	Debit	credit
December 31 ,2020	Income tax expense (209400*30%)	62,820
	Deferred tax liability		34,710
	Income tax payable		28,110

#Out of deferred tax liability, 36,300*30% = 10,890 will be classified as current (as same is payable within one year from reporting period) and rest will be classified as non-current:34,710-10,890= 23,820

c)

Income before income tax	209,400
less: Income tax expense	(62,820)
Net income	146,580