Johnny Bravo Ltd. is a public company that began operations on January 1, 2020, and it has
Question:
a. Warranty expense accrued for financial reporting purposes amounts to $5,000. Warranty liability on the SFP of $3,000 and warranty cost deductions per the tax return amount to $2,000.
b. Gross profit on construction contracts using the percentage-of-completion method amounts to $30,000, with revenue from long-term contracts of $90,000 and related construction expenses of $60,000. Gross profit on construction contracts completed for tax purposes was $0.
c. Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000 relating to equipment purchased on January 1, 2020, for $600,000 with an expected useful life of 10 years. The capital cost allowance for these assets is based on CCA Class 8, which has a 20% annual rate. 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).
d. A $3,500 fine paid for violation of pollution laws was deducted in calculating pre-tax accounting income.
e. A tax-exempt dividend was received from a taxable Canadian corporation amounting to $1,400. Instructions.
f. Calculate taxable income for 2020.
g. Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2020.
h. Calculate the deferred taxes at December 31, 2020, that relate to the temporary differences described above.
i. Draft the income tax expense section of the income statement, beginning with “Income before income taxes.”
Financial Accounting A User Perspective
ISBN: 978-0470676608
6th Canadian Edition
Authors: Robert E Hoskin, Maureen R Fizzell, Donald C Cherry