Patio Co. began operations in 2018 and follows IFRS. You, senior accountant of Patio Co., are working on the 2020 year's tax calculation and noted the following information: (1). The tax rate for 2018 and 2019 was 30%. The tax rate for 2020 and future years is 25%. The new rate was enacted in November, 2020 and was unknown prior to that date. (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 aloo 6,700 Advertising expense (see note 3) 37,500 Reported on tax return: Actual warranty costs incurred $ 15,000 $20,000 $ 50,000 Reported on tax return: Actual warranty costs incurred Capital cost allowance Advertising costs (see note 3) $ 15,000 $20,000 $50,000 32,000 57,000 60,000 75,000 3). Patio Co. signed a two-year advertising service with the local radio station on January 1, 2020 for the period January 1, 2020 to December 31, 2021. The total fees of $75,000 were paid on January 1, 2020. ). The warranty covers all parts and labor for a one-year time period. - For the year-ended December 31, 2020, Patio Co. reported a $500,000 accounting income before income tax expense. This amount includes a before tax loss from discontinued operations of $50,000, of which only one-half is tax deductible. here are 2 tabs to this question. THE QUESTION DATA HAS BEEN PRODUCED TWICE FOR EASE OF REFERENCE. CE ON THIS TAB (CURRENT TAX) AND ONCE ON THE DEFERRED TAX TAB. THE DATA IS IDENTICAL ON EACH TAB. JIRED PART A: Current Taxes (10 marks) he Controller is asking you eight (8) questions regarding your calculation of current income taxes. (1). What is the amount of accounting income? A. $450,000 B. $475,000 c. $550,000 D. $500,000 111 Answer: (2). The 2020 year non-deductible expenses of $8,000 are considered to be a: A. Difference between federal and provincial taxes B. Temporary difference C. Difference between IFRS and ASPE D. Permanent difference #2 Answer: (3). What adjustment is needed to accounting income regarding the 2-year advertising service? A. Add $37,500 to taxable income. accounting income. (3). What adjustment is needed to accounting income regarding the 2-year advertising service? A. Add $37,500 to taxable income. B. Add-back $37,500 to accounting income. C. Add-back $75,000 to accounting income. D. Deduct $0 from accounting income as the service is completed in 2022. #3 Answer: (4). When adjusting accounting income to taxable income, depreciation expense and capital cost allowance require adjustments. What is the NET adjustment needed (2 marks)? A. Deduct $60,000 B. Deduct $12,000. Add-back $144,000 D. Add-back $12,000. C. #4 Answer (5). What tax rate is used to calculate the current income tax expense for the year ended December 31, 2020? A 25% (5). What tax rate is used to calculate the current income tax expense for the year ended December 31, 202001 A 25% 8 C. 30% D. 12.5% (6). Assuming Patio Co has a positive taxable income, what statement corredly explains the current income tax presentation on the Statement of Financial Position at December 31, 2020? A. Patio Co. would show a current asset called income tax receivable. B. Patio Co. would show a non-current liability called income tax payable. C. Patio Co. would show a current liability called income tax payable. D. Patio Co, would show both a current and non-current liability called income tax payable. #6 Answer: 7). Which of the following illustrates the journal entry to record the current income taxes on the scontinued loss of $50,000 (2 marks)? Account Title Debit Credit (7). Which of the following illustrates the journal entry to record the current income taxes on the discontinued loss of $50,000 (2 marks)2 Account Title Debit Credit A. Current tax expense - discontinued operations 6,250 Current income tax payable 6,250 B. Current income tax payable Current tax expense - discontinued operations 6,250 6,250 7,500 C. Current income tax payable Current tax expense - discontinued operations 7,500 - 15,000 D. Current tax expense - discontinued operations Current income tax payable 15,000 #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. Deduct $200,000 from accounting income as it is a permanent difference. B. Add-back $200,000 to accounting income as it is a permanent difference. C. Add-back $200,000 to accounting income as it is a temporar Haifference. D. Deduct $200,000 from accounting income as it is a temporary difference. #8