The following information is available about Laura's Emporium Inc. (LEI) at December 31, 20X1:
- Net income before tax for 20X1 is $5,000,000.
- At December 31, 20X0, accrued pension cost, a non-current liability, was $1,200,000 and at December 31, 20X1, accrued pension cost was $600,000. In 20X1, pension expense was $200,000 while cash contributions to the pension fund amounted to $800,000. Pension expense is not deductible on the tax return. Only cash contributions are tax deductible in the year they are paid to the pension trustee.
- At December 31, 20X0, the machinery account had a tax basis of $1,500,000 and a carrying value of $2,000,000. For 20X1, LEI claimed CCA of $400,000 and depreciation was $500,000. All other assets were acquired via operating leases.
- In August 20X1, LEI received $400,000 dividends from an investment in shares of the Bank of Nova Scotia. Dividends Canadian corporations receive from other taxable Canadian corporations are never taxable in the hands of the receiving corporation.
- LEI acquired a three-year casualty insurance policy for $90,000 at the beginning of 20X1. The cost is tax deductible in 20X1 when the cash was paid for the three-year policy. By December 31, 20X1, the prepaid insurance account had a carrying value of $60,000 and a tax basis of zero.
- The tax rate for 20X1 is 45%. However, in September of 20X1 the government increased the tax rate to 47% effective for 20X2.
- There were no transactions with deferred tax implications other than those discussed above.
Required
a. Compute current tax expense, taxes payable, and deferred tax amounts for LEI for 20X1 using the method recommended by IFRS. Show all calculations. (Hint: taxable income is $4,040,000.)
b. Prepare the journal entry to record tax payable and deferred income tax for the year ended December 31, 20X1.
1. Indicate the amounts that would show on the statement of financial position of LEI as at December 31, 20X1.