3 - NOTE: THE QUESTION DATA HAS BEEN PRODUCED TWICE FOR EASE OF REFERENCE ONCE ON THIS TAB (CURRENT TAX) AND ONCE ON THE DEFERRED TAX TAB. THE DATA IS IDENTICAL ON EACH TAB. 5 6 Patio Co. began operations in 2018 and follows IFRS. You, senior accountant of Patio Co., are working on the 2020 7 year's tax calculation and noted the following information: 8 (1). For the year-ended December 31, 2020, Patio Co. reported a $500,000 accounting income before income tax 9 expense. This amount includes a before tax loss from discontinued operations of $50,000, of which only 10 one-half is tax deductible. 1 (2). The company began operations in 2018 and the following are differences between accounting and taxable income: Item 2018 2019 2020 Reported on income statement: C 11 H 12 13 14 75 16 (2). The company began operations in 2018 and the following are differences between accounting and taxable income: Item 2018 2019 2020 Reported on income statement: Estimated warranty expense 18,000 $ 27,000 $ 43,000 Depreciation expense 48,000 48,000 48,000 Non-deductible expenses 2,000 5,000 8,000 Non-taxable income 5,000 8,000 6,700 Advertising expense (see note 3) 37,500 17 18 19 20 21 2 $ Reported on tax return: Actual warranty costs incurred Capital cost allowance Advertising costs (see note 3) 15,000 $ 32,000 20,000 $ 57,000 50,000 60,000 75,000 75,000 24 Advertising costs (see note 3) 25 (3). Patio Co. signed a two-year advertising service with the local radio station on January 1, 2020 for the period 26 January 1, 2020 to December 31, 2021. The total fees of $75,000 were paid on January 1, 2020. 27 28 (4). The warranty covers all parts and labor for a one-year time period. (5). The tax rate for 2018 and 2019 was 30%. The tax rate for 2020 and future years is 25%. The new rate was 30 enacted in November, 2020 and was unknown prior to that date. 31 There are 2 tabs to this question. THE QUESTION DATA HAS BEEN PRODUCED TWICE FOR EASE OF REFERENCE. ONCE ON THIS TAB (CURRENT TAX) AND ONCE ON THE DEFERRED TAX TAB. THE DATA IS IDENTICAL ON EACH TAB. 29 2 TAX 30 enacted in November, 2020 and was unknown prior to that date. 31 There are 2 tabs to this question. THE QUESTION DATA HAS BEEN PRODUCED TWICE FOR EASE OF REFERENCE. ONCE ON THIS TAB (CURRENT TAX) AND ONCE ON THE DEFERRED TAX TAB. THE DATA IS IDENTICAL ON EACH TAB. 32 33 34 REQUIRED PART A: Current Taxes (10 marks) 35 (a). The Controller is asking you eight (8) questions regarding your calculation of current income taxes. (b). Workspace to the right is provided to prepare the calculation of current income tax for the year-ended 36 December 31, 2020 (if needed). The workspace is not for marks. (c). Using your completed schedule, answer the Controller's multiple-choice questions located in columns S to Z 37 (6 questions worth 1 mark each + 2 questions worth 2 marks each = 10 possible marks]. 38 The Controller is asking you eight (8) questions regarding your calculation of current income taxes. Using your completed schedule, answer the Controller's multiple-choice questions 1-8. (1). What is the amount of accounting income? A $475,000 B. $550,000 c. $450,000 D. $500,000 #1 Answer: (2). What adjustment is needed to accounting income regarding the 2-year advertising service? A. Deduct $0 from accounting income as the service is completed in 2021. B. Add-back $75,000 to accounting income. C. Add-back $37,500 to accounting income. R counts and taxable income V w X 2 (2). What adjustment is needed to accounting income regarding the 2-year advertising service? A. Deduct So from accounting Income as the service is completed in 2021. B. Add-back $75,000 to accounting income. c. Add-back $37,500 to accounting income. D. Add $37,500 to taxable income. #2 Answer (3). When adjusting accounting income to taxable income, depreciation expense and capital cost allowance require adjustments. What is the NET adjustment needed (2 marks)? A. Add-back $144,000. B. Add-back $12,000. C. Deduct $12,000. D. Deduct $60,000 #3 Answer: 5 (4). The 2020 year non-deductible expenses of $8,000 are considered to be a: A. Permanent difference B. Difference between IFRS and ASPE C. Temporary difference D. Difference between federal and provincial taxes #4 Answer: (5). What tax rate is used to calculate the current income tax expense for the year ended December 31, 2020? A. 30% B. 25% C. 15% D. 12.5% #5 Answer: R s T HOWIN are differences between accounting and taxable income V w X Z AA AB (6). Which of the following illustrates the journal entry to record the current income taxes on the discontinued loss of $50,000 (2 marks)? Account Title Debit Credit A. Current tax expense - discontinued operations 15,000 Current income tax payable 15,000 B. Current income tax payable Current tax expense - discontinued operations 7,500 7,500 6,250 C. Current income tax payable Current tax expense - discontinued operations 6,250 6,250 D. Current tax expense - discontinued operations Current income tax payable 6,250 #6 Answer: w 2 AA . (7). Assuming Patio Co. has a positive taxable income, what statement correctly explains the current income tax presentation on the Statement of Financial Position at December 31, 2020? A. Patio Co. would show both a current and non-current liability called income tax payable. B. Patio Co. would show a current liability called income tax payable. c. Patio Co. would show a current asset called income tax receivable, D. Patio Co. would show a non-current liability called income tax payable. #7 Answer (8). Patio Co. has a life insurance policy on its president. Assume in 2020, Patio Co. also received non-taxable proceeds of $200,000 because of the unfortunate death of its president. What adjustment would be needed to accounting income regarding the life insurance proceeds? A. Add-back $200,000 to accounting income as it is a permanent difference. B. Deduct $200,000 from accounti income as it is a temporary difference. C. Add-back $200,000 to accounting income as it is a temporary difference. D. Deduct $200,000 from accounting income as it is a permanent difference. #8