ACCT2036 Fall 2018 Assignment Please prepare solutions to the two exercises below. I will accept HANDWRITTEN RESPONSES ONLY; marks will be deducted for typed submissions. The assignment is due at the beginning of class at 3pm on Friday November 30. You may hand in a copy in person, or email a scan or picture of your work There are 50 marks available in the two questions. This assignment will constitute 10% of your final grade. Question 1 of 2 (30 marks) The following differences apply to the reconciliation of accounting income and taxable income of Gatsby Inc. for calendar 2018, its first year of operations. The enacted income tax rate is 30% for all years. $440,000 Accounting income Differences Excess CCA Lawsuit accrual Unearned rent revenue deferred on the books but correctly (220,000) 30,000 20,000 (12,000 included in taxable income Dividend income from Canadian corporations $258,000 Taxable income 1. Excess CCA will reverse equally over a four-year period, 2019-2022. 2. It is estimated that the lawsuit accrual will be paid in 2022. 3. Unearned rent revenue will be recognized as earned equally over a four year period, 2019- 2022 Instructions a) Prepare a schedule showing the future taxable and deductible amounts expected per year over the years 2019-2022. Prepare a schedule listing the various balance sheet accounts that contain timing differences, and calculating the deferred tax asset and/or deferred tax liability as at December 31, 2018. Since this is the first year of operations, there is no beginning deferred tax asset or liability. Calculate the net deferred tax expense (benefit) for 2018. Prepare journal entries to record income tax expense, deferred taxes, and income taxes payable for 2018. b) c) d) Question 2 of 2 (20 marks) Hendry Corp. reported net incomes for the last three years as follows: 2016 2017 $180,000 $240,000 $225,000 2018 During the 2018 year-end audit, Hendry's newly appointed auditors discover that Hendry bought a machine on January 1, 2015 for $125,000 cash, with a $25,000 estimated residual value and a five-year life. The company debited an expense account for the entire cost of the asset. Hendry uses straight-line depreciation for all machinery Instructions (Ignore all income tax effects) a) Prepare the general journal entry required to correct the books for this situation, assuming b) Prepare a schedule showing, for each of the years 2016 to 2018, income before the effect c) Assume that the retained earnings balance at January 1, 2018 is $720,000 (before any that the books have not been closed for 2018 of any accounting changes, the effect of the accounting changes, and the income after the effect of any accounting changes adjustment). At what adjusted amount should this beginning retained earnings balance be shown on the financial statements? ACCT2036 Fall 2018 Assignment Please prepare solutions to the two exercises below. I will accept HANDWRITTEN RESPONSES ONLY; marks will be deducted for typed submissions. The assignment is due at the beginning of class at 3pm on Friday November 30. You may hand in a copy in person, or email a scan or picture of your work There are 50 marks available in the two questions. This assignment will constitute 10% of your final grade. Question 1 of 2 (30 marks) The following differences apply to the reconciliation of accounting income and taxable income of Gatsby Inc. for calendar 2018, its first year of operations. The enacted income tax rate is 30% for all years. $440,000 Accounting income Differences Excess CCA Lawsuit accrual Unearned rent revenue deferred on the books but correctly (220,000) 30,000 20,000 (12,000 included in taxable income Dividend income from Canadian corporations $258,000 Taxable income 1. Excess CCA will reverse equally over a four-year period, 2019-2022. 2. It is estimated that the lawsuit accrual will be paid in 2022. 3. Unearned rent revenue will be recognized as earned equally over a four year period, 2019- 2022 Instructions a) Prepare a schedule showing the future taxable and deductible amounts expected per year over the years 2019-2022. Prepare a schedule listing the various balance sheet accounts that contain timing differences, and calculating the deferred tax asset and/or deferred tax liability as at December 31, 2018. Since this is the first year of operations, there is no beginning deferred tax asset or liability. Calculate the net deferred tax expense (benefit) for 2018. Prepare journal entries to record income tax expense, deferred taxes, and income taxes payable for 2018. b) c) d) Question 2 of 2 (20 marks) Hendry Corp. reported net incomes for the last three years as follows: 2016 2017 $180,000 $240,000 $225,000 2018 During the 2018 year-end audit, Hendry's newly appointed auditors discover that Hendry bought a machine on January 1, 2015 for $125,000 cash, with a $25,000 estimated residual value and a five-year life. The company debited an expense account for the entire cost of the asset. Hendry uses straight-line depreciation for all machinery Instructions (Ignore all income tax effects) a) Prepare the general journal entry required to correct the books for this situation, assuming b) Prepare a schedule showing, for each of the years 2016 to 2018, income before the effect c) Assume that the retained earnings balance at January 1, 2018 is $720,000 (before any that the books have not been closed for 2018 of any accounting changes, the effect of the accounting changes, and the income after the effect of any accounting changes adjustment). At what adjusted amount should this beginning retained earnings balance be shown on the financial statements