Black Canary Co. has asked for your assistance in preparing their tax worksheet and to determine their 2020 tax expense and finalize their 2020 Income statement. They have also asked that you prepare a statement of cash flows as of 12/31/2020. They have provided you with a historical record of income and an expected future income schedule, the summary pretax income information and an (incomplete) balance sheet below, as well as some notes their accounting clerk made regarding activities over the past fiscal year. Historical and Expected Income Schedule:

 

Additional paid-in capital-preferred Retained earnings 7,000 50,000 700,000 120,000 441,225 100,000 400,000 50,000 296,100 ??? $1,178,300 Additional Information provided by the accounting clerk: 

1. Canary believes that they will satisfy the contract terms for the final $7000 on customer advances in 2022. 

2. The mortgage lending institution agreed to accept an issuance of common stock in satisfaction of $30,000 of the principle due. 

3. Prior to extinguishing the mortgage payable interest of $17,000 was incurred. The interest expense is incorporated into Other operating expenses on the income statement of Black Canary Cash Co. 

4. Canary uses the same inventory cost flow assumption for tax and financial reporting. Likewise, amortization of intangible assets is deducted at the same rate it is expensed. 

5. Plant assets with an original cost of 900.000 were sold for 108.000 cash in February of 2019. 6. A new “Canary Cry Amplifier” was purchased for 950,000 in 2020. Canary estimates that the assets have a 5-year useful life with no salvage value. However, according to the MACRS the assets are deductible at a rate of 33%, 40%, 18%, and 9% in 2020 2021, 2022, and 2023 respectively. 

Prepare and clearly identify (e.g. box, circle, highlight) the final tax expense journal entry that Canary would make for 2020. 

a. Provide a completed tax worksheet with your final submission. 

b. Provide and clearly label any background work associated with your tax worksheet (e.g. NOL schedule, depreciation schedules, etc.).

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Historical and Expected Income Schedule: Taxable Income (Loss) Year 2018 2019 2020 2021 2022 2023 *No future changes in tax rates are known as of 2023. expect 110,000 expect 80,000 expect 100,000 expect 120,000 80,000 (170,000) Sales Cost of sales The summary income statement information for 2020 is as follows: Gross profit Depreciation Expense Patent Amortization Expense Salaries Expense Other operating expenses Other gains and losses Pretax Income Tax Expense Net income Tax Rate 40 45 30 40 45 35 $1,967,000 -1,132,500 834,500 -190,000 -21,000 -400,000 -95,000 58,000 186,500 ??? ??? Historical and Expected Income Schedule: Taxable Income (Loss) Year 2018 2019 2020 2021 2022 2023 *No future changes in tax rates are known as of 2023. expect 110,000 expect 80,000 expect 100,000 expect 120,000 80,000 (170,000) Sales Cost of sales The summary income statement information for 2020 is as follows: Gross profit Depreciation Expense Patent Amortization Expense Salaries Expense Other operating expenses Other gains and losses Pretax Income Tax Expense Net income Tax Rate 40 45 30 40 45 35 $1,967,000 -1,132,500 834,500 -190,000 -21,000 -400,000 -95,000 58,000 186,500 ??? ???

Answer rating: 100% (QA)

Income Statement Revenue 1000000 Cost of Goods Sold Gross Profit Operating expenses Depreciation 333333 Amortization 100000 Interest expense 17000 Other operating expenses 500000 Total operating expen... View the full answer