Financial Reporting

Accounting Income (loss) $178,000 $340,000 $(620,000)

A Capital Asset was purchased on January 1 of year 1 at a cost of $190,000.

Depreciation is $20,000 per year.

CCA is $19,000 in year 1, $25,000 in year 2 and $14,000 in year 3.

Warranty expense accrued is as follows $9,000 in year 1, $10,000 in year 2 and $8,000 in year 3.

Actual warranty claims paid: $6,000 in year 1, $10,000 in year 2 and $11,000 in year 3.

Golf Dues equal to $12,000 per year was paid each year.

Tax rates are 30% in year 1, 33% in year 2 and 26% in year 3.

Assume that it is probable that the loss carryforward will be used in the future years.

Required: SHOW YOUR CALCULATIONS. Prepare in Word or Excel.

1. Calculate Taxable Income and Income tax payable. Prepare the tax reconciliations for all three years (9 marks)

2. For year 3 answer the following: what is loss carryback? What is Loss carryforward? What is the refund? What is the tax benefit? (2 marks)

3. Prepare the tax journal entries for all three years assuming IFRS (9 marks)

(note: show how you obtain your adjustment for the Deferred Income Tax accounts)

4. Prepare the Partial Balance sheet and Partial Income statement for years 1-3 AND the Note Disclosure in Year 3 (6 marks)

5. Assume the company had Taxable Income equal to $35,500 in year 4 with no adjustment required for Temporary differences. What would be the Income Tax journal entries required in year 4 to record the tax payable and the use of the prior year’s loss carryforward? Assume year 4 had a tax rate of 28%. (3 marks)

What is the balance of “Deferred Income Tax-loss” account at end of year 4? (1 mark)

NOTE: If you are preparing your assignment in a group (Max 3 per group), only one student is required to upload the assignment in the Dropbox.

Student Name and student number for each student need to be clearly marked on the assignment and in the File name