Question

1. At the end of 2016, its first year of operations, Dawson Corp. Prepared the following reconciliation between the pre-tax accounting income and taxable income:

Pre-tax accounting income                   $300,000

Estimated lawsuit expense                    750,000

Instalment sales                                   (600,000)

Taxable Income                                    $450,000

The estimated law suit expense of $750,000 will be deductible in 2018 when it is expected to be paid. The instalment sales will be realized at $300,000 in each of the next two years. The income tax rate is 30% for all years. The deferred tax liability to be recorded is:

1. $180,000
2. $90,000
3. $67,500
4. $45,000

2. Under IFRS, the defined benefit obligation for accounting purposes is:

1. The present value of vested and non-vested benefits earned to the statement of financial position date, with the benefits measured using employees’ future salary levels
2. The present value of vested and non-vested benefits earned to the statement of financial position date, with the benefits measured using employees’ current salary levels
3. With the value of vested benefits only earned to the statement of financial position date, with benefits measured using employees’ future salary levels
4. The present value of non-vested benefits only earned to the statement of financial position date, with benefits measured using employees’ future salary levels.

Answer 1

Solution 1:

Deferred tax liability to be recorded in 2016 = Taxable temporary differences * Tax rate = Installment sale * 30%

= $600,000 * 30% = $180,000

Hence option a is correct.

Solution 2:

Under IFRS, the defined benefit obligation for accounting purposes is "the present value of vested and non-vested benefits earned to the statement of financial position date, with the benefits measured using employees' future salary levels."

Hence option a is correct.