The following information was disclosed during the audit

of Shawna #1407

The following information was disclosed during the audit of Shawna Inc.:

Year Amount Due per Tax Return

2014.........................$105,000

2015............................84,000

1. On January 1, 2014, equipment was purchased for $400,000. For financial reporting
purposes, the company uses straight-line depreciation over a five-year life, with no residual
value. For tax purposes, the CCA rate is 25%.

2. In January 2015, $225,000 was collected in advance for the rental of a building for the next
three years. The entire $225,000 is reported as taxable income in 2015, but $150,000 of the
$225,000 is reported as unearned revenue on the December 31, 2015 statement of financial
position. The $150,000 of unearned revenue will be earned equally in 2016 and 2017.

3. The tax rate is 30% in 2014 and all subsequent periods.

4. No temporary differences existed at the end of 2013. Shawna expects to report taxable
income in each of the next five years. Its fiscal year ends December 31. Shawna Inc. follows
IFRS.

Instructions

(a) Calculate the amount of capital cost allowance and depreciation expense for 2014 and 2015,
and the corresponding carrying amount and undepreciated capital cost of the depreciable
assets at December 31, 2014, and 2015.

(b) Determine the balance of the deferred tax asset or liability account at December 31, 2014,
and indicate the account's classification on the statement of financial position.

(c) Prepare the journal entry (ies) to record income taxes for 2014.

(d) Draft the bottom of the income statement for 2014, beginning with "Income before income
tax."

(e) Determine the balance of the deferred tax asset or liability account at December 31, 2015,
and indicate the account's classification on the December 31, 2015 statement of financial
position.

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 (f) Prepare the journal entry(ies) to record income taxes for 2015.

(g) Prepare the bottom of the income statement for 2015, beginning with "Income before income
tax."

(h) Provide the comparative statement of financial position presentation for the deferred tax
accounts at December 31, 2014, and 2015. Be specific about the classification.

(i) Is it possible to have more than two accounts for deferred taxes reported on a statement of
financial position? Explain.

(j) How would your response to part (h) change if Shawna Inc. reported under the ASPE
future/deferred income taxes method?

The following information was disclosed during the audit of Shawna

ANSWER
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