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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

Innis Corp. experienced an accounting and tax loss in 20X5. The benefit of the tax loss was realized in part by carryback. The remainder of the tax loss carryforward of $630,000 was not recognized
Cloud Corp. began operations in 20X8. In its first year, the company had a net operating loss before tax for accounting purposes of $200,000. Depreciation was $230,000, and CCA was $250,000. The
At the end of 20X8, Anderson Corp., a public company, had the following balances:In 20X8, the company had reported $1,350,000 of taxable income. It also reported a $550,000 long-term receivable,
Crandall Corp. was formed in 20X1. The company uses the comprehensive tax allocation method. Relevant information pertaining to 20X1, 20X2, and 20X3 is as follows:*Pension amounts are tax deductible
Zhang Ltd. reported earnings before income tax of $560,000 in 20X9. The tax rate for 20X9 was 30% and was enacted during the year. The enacted tax rate at the end of the previous year was 28%.At the
Behadrut Corporation uses IFRS for financial reporting. Information for 20X5 and 20X6 is provided below.Information relating to 20X5 is as follows:• The tax rate enacted in the year was 30%.•
Helon Corp. is a private company reporting under ASPE. Helon Corp. has selected to use the taxes payable method. Accounting income for 20X5 is $280,000. The following additional information is
Refer to the facts in A16-19.Data From A16-19In its first year of operations, Martha Enterprises Corp. reported the following information:a. Income before income taxes was $620,000.b. The company
Telo Corp. is a private company that uses the taxes payable method.The following information is available for 20X2:1. Income before income taxes was $1,300,000.2. The company paid a fine for late
Melik Ltd. engages in activity that qualifies for investment tax credits (ITCs) in 20X6. The company has a tax rate of 32% and deducts the deferred investment credit from the asset on the balance
Pegasus Printing began operations in 20X4 and has bought equipment for use in its printing operations in each of the last three years. This equipment qualifies for an investment tax credit of 14%.
Refer to the case facts in A16-21.Data From A16-21Diversified Ltd. (DI) is a public company that started operations in 20X4. It opened a number of locations across Canada. In fiscal 20X4, the company
The following are independent statements regarding corporate income taxes:1. The choice to adopt the taxes payable method or future income taxes method is available only under ASPE.2. If a private
Tempo Inc. is a Canadian company that has operations in Canada and Australia. One source of temporary differences relates to the warranty it offers on its core products.Required:What type of
Diversified Ltd. (DI) is a public company that started operations in 20X4. It opened a number of locations across Canada. In fiscal 20X4, the company had earnings before tax of $290,000. The tax rate
Moon Pacific Ltd. reported the following amounts on the 31 December 20X2 SFP (in thousands):Moon Pacific has material accounts receivable and purchase orders from customers that are denominated in
AZZY Ltd. issued preferred shares as part of a transfer of ownership under specified sections of the Income Tax Act. The company issued 400,000 shares, for a nominal dollar amount of $1 per share.
Laffoley Corp. needs to raise $10,000,000 to finance a planned capital expansion. The company has investigated two alternatives:1. Issue $10 million of preferred shares at par. The shares can be
Closed Tech Ltd. issued convertible bonds on 1 July 20X8. The 15-year, 5% $10,000,000 bonds pay interest semi-annually each 30 June and 31 December. At the investor’s option, each $1,000 bond is
Abbot Corporation is a real estate developer looking to build a new property in the Metro Vancouver area. In order to do so, they need to raise capital to finance the construction. The company has
SCIFI Ltd. issued convertible bonds on 1 February 20X6. The 5-year, 3% $8,000,000 bonds pay interest semi-annually each 31 January and 31 July. At the investor’s option, each $1,000 bond is
Description of several financial instruments follows:Case 1 Convertible subordinated bonds payable, entitled to annual cash interest at 5%, paid semi-annually. At maturity, the bonds may be settled
Mecca Energy Corp. issued a convertible bond on 1 August 20X9. The 10-year, 4% $12,000,000 bond pays interest semi-annually each 31 July and 31 January. At maturity, each $1,000 bond is convertible
Description of several financial instruments follows:Case 1 Class D Series 2 shares, carrying a dividend entitlement equal to $5 per share or an amount equal to common share dividends, whichever is
Pont Chemical Remediation Ltd. issued options in 20X6 allowing the holder to acquire 50,000 common shares in five years’ time at an acquisition price of $20 per share. Using an option pricing
Glamour Mining Ltd. currently has a debt to equity ratio of 2.5-to-1, based on $80 million of debt and $32 million of equity. The company is looking to raise $16 million in new financing and must
On 31 December 20X2, the shareholders’ equity section of Sersa Corp.’s statement of financial position was as follows:There were 46,000 share options outstanding, issued for legal services,
Shurwood Ltd. issued 5,000,000 8%, 10-year, nonconvertible bonds with detachable warrants for $5,100,000. Shortly after issuance, the warrants trade for $300,000 in total, and the bonds were trading
A description of several financial instruments follows:Case A Subordinated 8% debentures payable, interest payable semi-annually, due in the year 20X8. At maturity, the face value of the debentures
In 20X0 ten executive management were awarded units in a phantom stock plan. The plan entitles each executive to either 11,000 common shares or cash equal to the market value of 8,000 shares at the
Forgin Co. issued 500 common shares to We Can Advertize for advertising services. The shares currently are valued at $24 per share, and the advertising services rendered are valued at
Cruz Inc., a publicly traded company, had the following balances in its shareholders’ equity accounts at the beginning of 20X3:The following transactions took place during the year:1. At the
Marjorie Manufacturing Ltd. issued a convertible bond on 2 July 20X5. The $5 million bond pays annual interest of 8% each 30 June. Each $1,000 bond is convertible into 50 shares of common stock, at
Darling Petrol Corp. granted stock options to executives in early 20X1. The stock options vest over five years and expire after eight years. In total, the options allow the purchase of 400,000 shares
Smith Minerals Ltd. had compensation plans in effect for senior managers that included two longterm compensation elements. SFP accounts at the end of 20X6 are:Retention levels were estimated to be
IT Solutions Ltd. has a cash-settled SARs program for employees. These employees will receive a cash payment after five years of service, calculated as the excess of share price over $7.50. In early
On 1 January 20X4, Eledant Inc. issued a $9,000,000, 3-year bond that pays 7.5% for $9,400,000. The bond pays interest on 31 December each year. At the end of the term each bond can, at the
Agmore Breakthrough Corp. is a small biotech company listed on the TSX. To conserve cash, the company frequently settles obligations through the issuance of options. Shares are now trading for $7 per
Maritime Corp. is a junior mining company listed on the TSX. The common share price of Maritime fluctuates in value. Recent swings went from a high of $16 to a low of $0.30. Maritime issued stock
The following data are related to Eli Products Ltd.:During the year, the following transactions took place and have been correctly recorded:a. Reported earnings and comprehensive income was
Acer Corp. reported the following balances at 1 January 20X1:The following events took place in 20X1:a. Common shares were issued to employees under the terms of existing outstanding share options.
Five vice-presidents of Spinner Entertainment Ltd. are awarded units in a phantom stock plan at the beginning of 20X5. At the end of 20X7, after three years of employment, each vice president is
The following cases are independent:Case A Information from the 31 December 20X7 SFP of Holdco Ltd.:Convertible bonds were issued during the year. Discount amortization was $7,280 in 20X7.Case B
Wen Chu is a senior account manager for a large Canadian bank. The bank is considering the possibility of syndicating a large debenture issue for Wilstar Products Ltd. (WPL), a manufacturer of auto
MNA is a Canadian-based pharmaceutical company that develops generic over-the-counter medicines.The company is publicly traded. The company sells its products to pharmacies across North America, and
Software Inc. (SI) is a private corporation formed in the 1990s. SI develops and sells software for many purposes; theft recovery, geomapping, data and device security, and IT asset management.To
Element Inc. is a producer of leading-edge medical equipment. The company has always had competitive compensation packages for its employees. At the beginning of 20X5, 100 employees were awarded a
Eldon Ltd. is a private company that complies with ASPE. Eldon issued the following financial instruments in 20X4:1. Convertible debentures issued at 103. The debentures require interest to be paid
Goldem Ltd. is a private company that complies with ASPE. The company issued the following financial instruments in 20X4:1. Retractable preferred shares. Issued 1,500 preferred shares to the owner of
Argile Inc. is a Canadian private company. The company has a competitive stock-based compensation program for all of its 125 employees. Information from the 20X5 grant:• 500 shares options are
The following information has been provided for Relink Corporation for 20X2-20X5:Required:1. What is the tax basis of the capital assets in each year?2. What is the tax basis of the development costs
Nalad Corp. provided the following data related to accounting and taxable income:There are no existing temporary differences other than those reflected in these data. There are no permanent
Listed below are a number of items that are required to adjust net income before income tax to taxable income.Required:1. For each item, indicate if it will be added or subtracted from net income
Consider the following independent scenarios:Scenario A Tomkin Inc. sells 6% convertible bonds for $1,080,000 that are due in 10 years. The market interest rate is 8%. Each $1,000 bond is convertible
The financial statements of Dakar Corp. for a four-year period reflected the following pre-tax amounts:Dakar has a tax rate of 40% each year and claimed CCA for income tax purposes as follows: 20X4,
The following is selected information from the accounting records of Slow Inc. for 20X9 its first year of operations:In determining pre-tax accounting earnings, the following deductions were made:For
Hendrie Inc. reported earnings before income taxes of $2,200,000 in 20X9. The tax rate for this year is 40%.Required:1. Use the information from TR16-1. Calculate taxable income.2. What is the amount
DCM Metals Ltd. has a 31 December year-end. The tax rate is 30% in 20X4, 35% in 20X5, and 42% in 20X6. The company reports earnings as follows:Taxable income and accounting income are identical
Lantz Ltd. reported earnings before income taxes of $540,000 in 20X5. The company had expensed $25,000 of golf club dues that were not tax deductible. There was tax-free dividend revenue of $10,000.
At the end of 20X6, Tap Ltd. had accumulated temporary differences of $500,000 arising from CCA/depreciation on capital assets. UCC was $2,500,000 and net book value of these assets was $3,000,000.
McQuinn Corp. started operations in 20X5. The company acquired equipment on the first day of operations for a price of $180,000. The equipment will be depreciated for accounting purposes over three
Leonard Ltd. recorded revenue in 20X6 in the amount of $100,000. The amount will be collected from the customer in the amount of $40,000 in 20X7 and $60,000 in 20X8. The revenue will be taxable when
At the end of 20X8, Bent Angel Ltd.’s statement of financial position showed equipment at total cost of $2,000,000. The equipment was being amortized at 10% per year, straight-line, and was 40%
Golf Inc., which began operations in 20X3, uses the same policies for financial accounting and tax purposes with the exception of warranty costs and franchise fee revenue. Information about the
Stacy Corp. would have had identical income before tax on both its income tax returns and statements of profit and loss for the years 20X4 through 20X7, except for equipment that cost $120,000. The
Zygote Ltd. recorded warranty expense of $125,000 in 20X6, $35,000 in 20X7, and $75,000 in 20X8. Warranty claims paid were $70,000 in 20X6, $55,000 in 20X7, and $90,000 in 20X8. Warranty amounts are
The following is a list of temporary differences:1. Depreciation versus CCA on equipment.2. Money received from a customer prior to services being performed; cash is taxable when received.3. An
Marsh Corp. reported a deferred tax asset of $24,000 in 20X2, caused by a warranty liability of $80,000. The tax rate was 30%. In 20X3, accounting earnings were $200,000, warranty claims paid were
Martin Ltd., in the first year of its operations, reported the following information regarding its operations:a. Earnings before tax for the year was $2,500,000 and the tax rate was 38%.b.
In its first year of operations, Martha Enterprises Corp. reported the following information:a. Income before income taxes was $620,000.b. The company acquired capital assets costing $1,800,000;
The pre-tax income of Barrows Ltd. for the first three years was as follows:The company had no temporary differences in any of the three years. The income tax rate was constant at 36%.In 20X6 and
The following information pertains to Towers Corp.:• From 20X1 through 20X3, Towers had pre-tax income totalling $150,000.• In 20X4, Towers had a pre-tax loss of $550,000.• Earnings of each
The 20X6 records of Laredo Inc. show the following reconciliation of accounting and taxable income:In 20X5, Laredo had reported an operating loss, the tax benefit of which was fully recognized in
Refer to case facts in A17-19.Data From A17-19On 1 January 20X7, Chang Inc. commenced business operations. At 31 December 20X9, the following information relates to Chang:Required:Prepare the journal
Refer to case facts in A17-8.Data From A17-8Benata Ltd. started operations in 20X5 and purchased buildings and equipment with an original cost of $400,000. Benata reported the following
The pre-tax income for Xing Inc. for the first three years of operations is provided below.Xing Inc. had no sources of temporary differences in 20X1, 20X2, and 20X3. The income tax rate was 34% in
Emblam Incorporated is a biotechnology firm, engaging in research and development (R&D). During 20X1–20X5, its first five years, it engaged in heavy R&D activities without having yet
Kriyati Corp. is a private company that is strongly considering going public in the near future. In 20X9 it has a taxable loss of $10,000,000. For the prior three years Kriyati Corp. had taxable
Toldo Corporation is a medium-sized manufacturing company based in Canada. It has a South African subsidiary, Dinto Corporation, that is consolidated in its annual financial statements. Toldo has a

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