The following information is available for YCA Limited (YCA) in 2020, the first year of its...

 

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The following information is available for YCA Limited (“YCA") in 2020, the first year of its operations: (i) On January 1, 2020, YCA issued a $400,000, 8%, 10-year bond. The bond pays interest annually on December 31 of each year, starting from December 31, 2020. The bond has a yield of 10% and is accounted for under the effective-interest method. Tax deduction for interest expenses is available only to those arising from bank borrowing. Any other interest expenses, including those from the issue of notes and bonds in any circumstances, are not allowed for tax deduction. (ii) On Nov 1, 2020, YCA accrued a litigation loss of $50,000 for pending litigation with probable unfavourable outcome. YCA expects to deduct this amount for tax purposes when it pays the liability in 2022. Requirement: B.1 Prepare the amortization table for the bond in 2020 and 2021. (Round to the nearest dollar.) (11 marks) B.2 Analyse whether situations (i), and (ii), respectively, will create a deferred tax asset, a deferred tax liability, or neither for 2020. (6 marks) The following information is available for YCA Limited (“YCA") in 2020, the first year of its operations: (i) On January 1, 2020, YCA issued a $400,000, 8%, 10-year bond. The bond pays interest annually on December 31 of each year, starting from December 31, 2020. The bond has a yield of 10% and is accounted for under the effective-interest method. Tax deduction for interest expenses is available only to those arising from bank borrowing. Any other interest expenses, including those from the issue of notes and bonds in any circumstances, are not allowed for tax deduction. (ii) On Nov 1, 2020, YCA accrued a litigation loss of $50,000 for pending litigation with probable unfavourable outcome. YCA expects to deduct this amount for tax purposes when it pays the liability in 2022. Requirement: B.1 Prepare the amortization table for the bond in 2020 and 2021. (Round to the nearest dollar.) (11 marks) B.2 Analyse whether situations (i), and (ii), respectively, will create a deferred tax asset, a deferred tax liability, or neither for 2020. (6 marks)

Answer rating: 100% (QA)

Answer to Question 1 YCA Ltd is going to account for the bond at Effective Rate of Interest Method The Yield of the Bond is 10 Hence Bond must be initially recognized at the Present value of all the c... View the full answer