Exam 6: Revenue Recognition

KAR Ltd.has been in business for five years and incurs a loss of $320,000 in 20x15.The company has no temporary differences.The history of the company's earnings since they began operations is as follows: The tax rate has been constant at 40%. Required: Prepare journal entries to record the recovery of taxes and any journal entries necessary for any loss carry forwards.Assume probability of recovery is less than 50%

The terms "probable" and "more likely than not" refer to probabilities that are greater than or equal to 50%.

There is some question as to whether there should be early recognition of the deferred benefit of a loss carry forward.Discuss.

JR Company incurred a loss in 2011,due in part to a fire at one of its plants.The deferred benefit of a loss carry forward was not recognized in the year as the probability of realization was less than 50%.In 2012,JR Company incurred a small loss,but due to large contracts upcoming,it was determined that the probability of realization was greater than 50%.The tax rate for 2011 was 40% and 2012 45%.JR Company should:

A company may not file previous years' tax returns to change the amount of CCA claimed if it so wishes.

FGH had a $1,200 temporary difference for deferred gross margin on instalment sales at the end of 2012.This temporary difference will reverse equally during 2013,2014 and 2015.The enacted corporate income tax rate is 48% and government is discussing a reduction in the corporate income tax rates for 2014 and 2015 to 38%.The deferred income tax liability related to this temporary difference at the end of 2013 would be:

IFRS requires that any Valuation Allowance account balances (if used)be shown separately on the Statement of Financial Position.

Geisler Corp.provided you with the following information for the year ending December 31,2017: Net Income before taxes: $150,000 Depreciation (included in above)$90,000 CCA$250,000 The net book value of the capital assets was $1,100,000,and their UCC was $900,000 on January 1,2017. A temporary difference of $200,000 is reflected in an accumulated deferred income tax liability (DTL)balance of $90,000 at January 1,2017. There were no permanent differences. Taxable income in the three-year carry back period was $400,000.Tax losses are carried back as far as allowable by law. A tax rate of 45% applies to the current and previous years. Based on the above information,what is Geisler's tax recovery for 2017?

Financial information related to Unip Limited's ("UL")2013 and 2014 fiscal year is: UL's year-end is December 31.Prior to 2014,UL did not have any losses.The deferred tax liability account at the beginning of 2013 is $672,000.The tax rate in 2013 and 2014 is 40%. Required: 1.a)Prepare the tax entry for 2013 and 2014.Assume UL claims the maximum CCA in 2014 and carries back the 2014 loss to 2013. b)What is the balance in the deferred tax asset/liability account on December 31,2014? 2.a)Prepare the 2013 and 2014 tax journal entries assuming the following: In 2014 UL does not claim any CCA,the 2014 loss is carried back to 2013 and any unused losses will be carried forward.UL believe it is more likely than not (probability > 50%)that the unused loss carry forward will be utilized in the future.The pre-tax operating loss in 2014 is $3,432,000.Also,when filing the 2014 tax return,UL also re-files the 2013 return to eliminate the CCA claimed that year. b)Under the assumptions in a),what is the balance in the deferred tax asset/liability account on December 31,2014?

In the year in which a tax loss is incurred,the tax loss must equal the net loss reported on the company's financial statements.

When applying tax loss carry backs,most companies have a policy of maximizing their return in the current year.

The following information pertains to XYZ Inc.: Assuming that XYZ has a policy of tax refund maximization,how much would the company be able to recover in taxes through the use of its 2014 tax loss?

The following information pertains to XYZ Inc.: Assuming that XYZ has a policy of applying its tax losses,sequentially,how much would the company be able to recover in taxes through the use of its 2014 tax loss?

A tax loss represents the present and deferred benefit that the company will be able to realize from the tax loss through a reduction of income taxes paid to governments.

JG Ltd.provided you with the following information: There are no temporary differences.What is the tax recovery in 2015 assuming that a policy of tax refund maximization is followed?

XYZ Inc.is a publicly traded company.At the start of the current year,the company had tax loss carry forwards in the amount of $500,000.This amount increased by $100,000 during the year,due to a change in estimate of the company's future earnings targets.The tax rate for the current year is 25%.The enacted tax rate for future years is 20%.The company uses a valuation allowance account to track its tax loss carry forwards.Which of the following correctly describes the balances in XYZ's internal records at the end of the current year?

JG Ltd.has been in business for five years and incurs a loss of $520,000 in 20x15.The company has no temporary differences.The history of the company's earnings since they began operations is as follows: The tax rate has been constant at 38%. Required: Prepare journal entries to record the recovery of taxes and any journal entries necessary for any loss carry forwards.In 20x16,JG incurs a further loss of $40,000.The tax rate changed to 40%.Assume probability of recovery is greater than 50% in 20x15 but less than 50% in 20x16.

The recovery of income tax expense is credited to income tax expense (recovery)account.

A Corporation that incurs a taxable loss is entitled to offset the loss as follows:

The following information pertains to ABC Inc.: Assume that ABC Inc.meets the more likely than not criteria for tax loss carry forward recognition.The tax rate for 2015 and beyond is expected to be 20%,and this rate was enacted during 2014.This information would result in: