KureAll Pharmaceutical Industries, Inc., [KPI] manufactures a wide range of medical products which are distributed world wide. It reported an accounting income before income taxes of $1,875,000 for the year ended December 31, 2018. The following additional information is provided to you.
☞ The carrying amount [net book value] of its capital assets as at January 1, 2018, was $3,768,000, and at January 1, 2019, was $3,828,000. Depreciation expense in 2018 on capital assets was $861,000. Similarly, the undepreciated capital cost balance (UCC tax basis) was $2,568,000 on January 1, 2018 and $2,304,000 on January 1, 2019. There were no asset disposals in 2018.
☞ In 2017, a gel mixer was sold and a profit of $78,000 was recognized in accounting income. Because the sale was made with delayed payment terms, the profit is taxable only as KPI receives payments from the purchaser. A $6,000 profit on the down payment was received in 2017, with the balance expected to be received in equal amounts over the following three years.
☞ Life insurance premiums on the life of the company’s chief executive officer were paid by the company and amounted to $36,000. This expense is not deductible for tax purposes.
☞ Dividends of $15,000 received during the year from a Canadian corporation were non-taxable.
☞ KPI had a balance of $237,000 as warranty liability on January 1, 2018 and $168,000 on January 1, 2019. Warranty claims paid out during 2018 amounted to $135,000.
☞ Golf club membership dues paid for company executives amounted to $60,000. This expense is not deductible for tax purposes.
☞ In 2017, the government changed the income tax rate from 35% to 40%, effective January 1, 2018.
[40] ASSUME that KPI decides to make the following entry on December 31, 2018.DR Current income tax expense $634,800
CR Income tax payable $634,800
This would imply that
Select one:
a.the taxable income for 2018 was equal to the accounting income
b.the income tax expense reported by KPI on its income statement would be $750,000
c.the taxable income for 2018 was determined to be $1,587,000
d.All of the above
e.None of the above