Question 1 (7 marks)

Vanier Corporation reported the following information at the beginning of its current fiscal year:

Deferred income tax asset (warranties) $ 2,400 (dr)

Deferred income tax liability (depreciable assets) 10,500 (cr)

During the year, Vanier reports the following information:

-Pre-tax income was $850,000 and the tax rate was 32%;

-Depreciation expense was $75,000 and the CCA was $80,000. The carrying amount of property, plant, and equipment at the end of the year was $420,000 while the UCC was $380,000;

-Warranty expense was reported at $40,000 while actual cash paid out was $38,000. The warranty liability had a year-end balance of $10,000.

-No other items affected deferred tax amounts other than these transactions.

Required:

Prepare the journal entries to record income tax for the year. Provide the income statement section commencing with Net income before taxes.

Question 1 A (4 marks)

In 2016 to 2018 respectively, Bonwick Co. earned taxable income of $500,000, $800,000 and $700,000, and paid income tax of $150,000, $260,000, and $200,000. It is now the end of 2019 and the company has incurred a loss of $3,500,000 for tax purposes and earns an accounting loss before tax of $3,000,000. The difference between accounting and taxable income is due to CCA exceeding depreciation expense. The tax rate is currently 30%. Bonwick anticipates using only 60% of the losses carried forward within the allowable carryforward period.

Required:

Record the journal entries for income tax expense and income tax payable or receivable for 2019.

Question 2 (4.5 marks)

On December 31, 2016, Kanuk Utilities Corporation which adopted IFRS had 600,000 common shares and 300,000 noncumulative, non-convertible preferred shares issued and outstanding. Kanuk issued a 4% common stock dividend on May 15, 2017 and paid cash dividends of $400,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2017.

On February 28, 2017, Kanuk issued 60,000 common shares. Also as a part of a 2016 agreement for the acquisition of Vicks Vineyards Co, another 23,000 shares (already adjusted for the stock dividend) are to be issued to former Vicks Vineyard shareholders on December 31, 2018 if Vicks 2018 net income is at least $500,000. In 2017, Vicks Vineyards net income was $630,000.

In keeping with its long-term share repurchase plan, 3,000 shares were repurchased and cancelled on July 1, 2017. Kanuk net income after tax for the year ended December 31, 2017 was $2,100,000. The income tax rate is 40%.

On July 1, 2015 Kanuk had issued $800,000 of convertible debentures at face value. Each $1,000 bond is convertible into 30 common shares (not adjusted for the stock dividend). 2017 interest expense was $80,000 on these bonds.

Required:

Compute Kanuks basic and diluted EPS for the year ended December 31, 2017.

Question 2A (4.5 marks)

In its recent year-end, Rod Roy reported an after tax loss of $10,000 which included income from continuing operations of $50,000 after tax. There were discontinued operations during the year.

IT also reported the following at the beginning of the year:

Preferred shares, 3%, cumulative $200,000

Common shares, 5,000 issued and outstanding $100,000

No shares were issued or repurchased during the year, however there were outstanding options issued several years prior allowing for the purchase of 6,000 common shares at a price of $15. The average market price in the year was $18.

Required:

Provide the required IFRS disclosures for earnings per share data required in Rod Roys annual report.