The accountant at Delaney, Andover & Phong (DAP) has provided you with the following partial Statement...

 

Transcribed Image Text:

● ● ● The accountant at Delaney, Andover & Phong ("DAP") has provided you with the following partial Statement of Comprehensive Income for the year ended December 31, 2020: ● ● ● ● ● ● ● ● Sales Revenue Cost of Goods Sold Gross Profit Salaries and Wages Office Supplies Interest expense Depreciation Expense Meals and Entertainment Warranty expense Total Operating Expenses Operating Income Other: Rent revenue Capital gains on portfolio disposals Contingent loss Additional Information: The net book value of the depreciable capital assets at December 31, 2019 was $1,028,000. The un-depreciated capital cost at December 31, 2019 was $723,000. There were no additions or disposals of capital assets in the year. Income before taxes, continuing operations Other Comprehensive Income Total Comprehensive Income Account DAP's tax accountants advised claiming CCA this year of only 15%, declining balance. One deferred income tax balance, among others, disclosed in the notes to the December 31, 2019 financial statements, was $97,600 arising from the capital assets. The December 31, 2019 balance in the estimated warranty liability account was $75,000 and costs incurred to service warranties in 2021 amounted to $25,000. $ 1,300,000 (670,000) 630,000 Included in interest expense is interest levied by Canada Revenue Agency of $700 for late tax instalments. 2014 $67,000 240,000 5,000 3,000 Rent revenue arose from renting an underutilized storage warehouse. On, January 1, 2018, UBC collected $300,000 in advance for a four year rental period, taxed upon receipt. 125,000 20,000 9,000 402,000 228,000 The contingent loss relates to an accrual for a lawsuit which arose in 2020 that DAP expects to lose. The lawsuit is expected to be settled next year. The OCI is caused by fair valuing idle land being held for future expansion. The enacted tax rate for 2020 is 32%. The enacted tax rate for years subsequent to 2020 is 35% which was legislated in mid-2020. 75,000 22,000 (168,000) In 2019 UBC suffered a substantial non-capital tax loss of $475,000. Taxable incomes for the years 2014-2018 follow and the tax rate for all of these years was 28%. The enacted tax rate for 2020 was known at the end of 2019. 2015 $47,000 Deferred tax analysis: Account balance calculations: Tax entries: $157,000 75,000 $232,000 Tax Basis 2016 $58,000 Description In evaluating the treatment of any tax loss carry-forward (LCF) at the end of 2019, management evaluated a high level of uncertainty and volatility in generating sufficient future taxable incomes and did not recognize any benefit of the loss carry-forward at that time. However, innovative marketing and new, differentiated products changed this assessment and, at the end of 2020, the full benefit of any available LCF at that time was recognized. Round any amounts to the nearest dollar. Required #1: Prepare, with supporting calculations, required entries to record the tax provision for continuing operations for the year ended December 31, 2020. Analysis and current tax reconciliation: 2017 $64,000 2018 $76,000 GAAP Temp. Deferred Deferred Adjustment Basis Ending Beginning A?/L? A?/L? Diff. Debit Credit ● ● ● The accountant at Delaney, Andover & Phong ("DAP") has provided you with the following partial Statement of Comprehensive Income for the year ended December 31, 2020: ● ● ● ● ● ● ● ● Sales Revenue Cost of Goods Sold Gross Profit Salaries and Wages Office Supplies Interest expense Depreciation Expense Meals and Entertainment Warranty expense Total Operating Expenses Operating Income Other: Rent revenue Capital gains on portfolio disposals Contingent loss Additional Information: The net book value of the depreciable capital assets at December 31, 2019 was $1,028,000. The un-depreciated capital cost at December 31, 2019 was $723,000. There were no additions or disposals of capital assets in the year. Income before taxes, continuing operations Other Comprehensive Income Total Comprehensive Income Account DAP's tax accountants advised claiming CCA this year of only 15%, declining balance. One deferred income tax balance, among others, disclosed in the notes to the December 31, 2019 financial statements, was $97,600 arising from the capital assets. The December 31, 2019 balance in the estimated warranty liability account was $75,000 and costs incurred to service warranties in 2021 amounted to $25,000. $ 1,300,000 (670,000) 630,000 Included in interest expense is interest levied by Canada Revenue Agency of $700 for late tax instalments. 2014 $67,000 240,000 5,000 3,000 Rent revenue arose from renting an underutilized storage warehouse. On, January 1, 2018, UBC collected $300,000 in advance for a four year rental period, taxed upon receipt. 125,000 20,000 9,000 402,000 228,000 The contingent loss relates to an accrual for a lawsuit which arose in 2020 that DAP expects to lose. The lawsuit is expected to be settled next year. The OCI is caused by fair valuing idle land being held for future expansion. The enacted tax rate for 2020 is 32%. The enacted tax rate for years subsequent to 2020 is 35% which was legislated in mid-2020. 75,000 22,000 (168,000) In 2019 UBC suffered a substantial non-capital tax loss of $475,000. Taxable incomes for the years 2014-2018 follow and the tax rate for all of these years was 28%. The enacted tax rate for 2020 was known at the end of 2019. 2015 $47,000 Deferred tax analysis: Account balance calculations: Tax entries: $157,000 75,000 $232,000 Tax Basis 2016 $58,000 Description In evaluating the treatment of any tax loss carry-forward (LCF) at the end of 2019, management evaluated a high level of uncertainty and volatility in generating sufficient future taxable incomes and did not recognize any benefit of the loss carry-forward at that time. However, innovative marketing and new, differentiated products changed this assessment and, at the end of 2020, the full benefit of any available LCF at that time was recognized. Round any amounts to the nearest dollar. Required #1: Prepare, with supporting calculations, required entries to record the tax provision for continuing operations for the year ended December 31, 2020. Analysis and current tax reconciliation: 2017 $64,000 2018 $76,000 GAAP Temp. Deferred Deferred Adjustment Basis Ending Beginning A?/L? A?/L? Diff. Debit Credit

Answer rating: 100% (QA)

To prepare the required entries to record the tax provision for continuing operations for the year e... View the full answer