Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Rehal Services has provided the following information for use in determining its income tax obligations related to the year ended December 31, 2020. Rehal Services
Rehal Services has provided the following information for use in determining its income tax obligations related to the year ended December 31, 2020.
Rehal Services Income Statement For the Year Ended December 31, 2020 | ||||
Revenue | ||||
Service Revenue | $830,000 | |||
Dividend Revenue | 42,000 | |||
Life Insurance Claim Received | 102,500 | |||
Total Revenue | $974,500 | |||
Operating Expenses | ||||
Office Expenses | 18,050 | |||
Depreciation Expense | 96,000 | |||
Advertising Expense | 18,800 | |||
Meals and Entertainment Expense | 16,800 | |||
Rent Expense | 35,800 | |||
Litigation Expense | 24,500 | |||
Life Insurance Premiums Paid | 7,700 | |||
Salaries and Wages Expense | 315,500 | |||
Warranty Expense | 47,000 | |||
Total Operating Expense | 580,150 | |||
Income From Operations | $394,350 |
Additional Information:
1. | Rehal is publicly owned and uses IFRS. It has an income tax rate of 25%. The dividend revenue represents dividends received from taxable Canadian corporations. | |
2. | During the year warranty expense of $47,000 was accrued. $9,400 of this amount was paid in cash during 2020. This is the first year Rehal offers warranties on services rendered. | |
3. | Property, plant, and equipment was purchased for $576,000 on January 1, 2019. These assets are being depreciated on a straight-line basis over six years with no residual value. For tax purposes the assets are classified as Class 8, 20%. This PPE is considered "eligible equipment" for purposes of the Accelerated Investment Incentive (the "AII") (under the AII, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate). This rate was used for 2019. | |
4. | Rehal pays for life insurance policies for its top executives. During 2020, one of the executives died, and the company received a payment of $102,500 from the life insurance company. | |
5. | On July 1, Rehal was sued by a competitor. Although the lawsuit has not been finalized, management believes that it is probable that a settlement will eventually be reached for $24,500. | |
6. | On November 15, $30,000 was received from a customer for three months of service, beginning on November 15. One half of this amount was earned and included in revenue for 2020. Advance payments are included in taxable income when the cash is received. | |
7. | On December 1, one of the company executives received a speeding ticket for $150. The company paid the ticket for the executive and recorded the cost as an office expense. |
Calculate taxable income and taxes payable for 2020.
Prepare the journal entries to record 2020 income taxes (current and deferred).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started