Question

In: Accounting

For the year ended December 31, 2020, Stellar Ltd. reported income before income taxes of $100,000....

For the year ended December 31, 2020, Stellar Ltd. reported income before income taxes of $100,000.

In 2020, Stellar Ltd. paid $54,000 for rent; of this amount, $18,000 was expensed in 2020. The remaining $36,000 was treated as a prepaid expense for accounting purposes and would be expensed equally over the 2021-2022 period. The full $54,000 was deductible for tax purposes in 2020.

The company paid $70,000 in 2020 for membership in a local golf club (which was not deductible for tax purposes).

In 2020 Stellar Ltd. began offering a 1-year warranty on all merchandise sold. Warranty expenses for 2020 were $38,000, of which $31,000 was actual repairs for 2020 and the remaining $7,000 was estimated repairs to be completed in 2021.

Meal and entertainment expenses totalled $17,000 in 2020, only half of which were deductible for income tax purposes.

Depreciation expense for 2020 was $190,000. Capital Cost Allowance (CCA) claimed for the year was $217,000.

Stellar was subject to a 20% income tax rate for 2020. Stellar follows IFRS. At January 1, 2020, Stellar Ltd. had no balances in deferred tax accounts.

Calculate taxable income and taxes payable for 2020.

Taxable income, 2020		$
Taxes payable, 2020		$

Prepare the journal entries to record 2020 income taxes (current and deferred).

Account Titles and Explanation	Debit	Credit


(To record current tax expense.)


(To record deferred tax expense.)

Expert Solution

Calculate taxable income and taxes payable for 2020.

.	Profit Before Taxes	$100000
.	Adjustments
Less:	Rent expenses deductible	$(36000)
Add:	Membership fee paid not deductible	$70000
Add:	Meal and entertainment expense	$8500
Add:	Depreciation as per books	$190000
Less:	Capital cost allowance	$ (217000)
Add:	Estimated warranty expenses disallowed	$ 7000
	Taxable Income	$122500

.

1	Taxable Income, 2020	$122500
2	Taxes Payable, 2020 (Taxable Income * tax rate(122500*20%)	$24500

.

Prepare the journal entries to record 2020 income taxes (current and deferred).

.

Accounting Income

$100000

Current Income Tax(Book Profit*tax rate)(100000 * 20%)

$ 20000

Deferred Tax(Taxable Income- Profit as per books)*tax rate

(122500-100000)*20%

$4500

.

Account Titles and Explanation	Debit	Credit
Profit & Loss A/c	$20000
Provision for Income Tax(Current Tax)		$20000
(Being provision created for current tax at accounting income)

Deferred Tax Assets	$4500
Profit & Loss A/c		$4500
(Being deferred tax Assets created @ 20%)

.

ekkarill92 answered 3 years ago

The income statement of Redman Inc. for the year ended December 31, 2020, reported the following...

The income statement of Redman Inc. for the year ended December 31, 2020, reported the following condensed information: Service revenue $ 600,000 Operating expenses 360,000 Income from operations 240,000 Income tax expense 60,000 Net income $180,000 Redman's statement of financial position contained the following comparative data at December 31: 2020 2019 Accounts receivable $65,000 $40,000 Accounts payable 40,000 55,000 Income taxes payable 6,000 3,000 Redman has no depreciable assets. Accounts...

Blimp Co. reported net income of P1,000,000 for the year ended December 31, 2020. Upon further...

Blimp Co. reported net income of P1,000,000 for the year ended December 31, 2020. Upon further inspection of its records, the entity failed to recognized prepaid insurance of P12,000; accrued expense and revenue of P2,000 and P4,000, respectively. An advance payment of P10,000 from a customer was also entirely recognized as a liability. It was found out that Blimp has already earned 30% of it. Lastly, sales from a customer amounting to P20,000 was incorrectly recognized as P2,000. 1. Following...

Cullumber Ltd. ended its first fiscal year on December 31, 2020, reporting a pretax income for...

Cullumber Ltd. ended its first fiscal year on December 31, 2020, reporting a pretax income for accounting purposes of $1,320,000. All of Cullumber’s products were sold with a two-year warranty included. Cullumber recorded $268,000 of warranty expense for accounting purposes in 2020, including $158,000 of actual warranty costs incurred during the year plus $110,000 in estimated warranty liability for the remainder of the warranty period. Estimated liabilities are not deductable for tax purposes. Cullumber was subject to a 33% income...

Royal West Airlines Ltd. Income Statement For the Year Ended December 31, 2020 Sales revenue $2,561,096...

Royal West Airlines Ltd. Income Statement For the Year Ended December 31, 2020 Sales revenue $2,561,096 Cost of sales (1,003,860) Gross margin $1,557,236 Other expenses ( 890,743) Net income, before income tax $ 666,493 Royal West Airlines is a regional airline that services Western Canada. Notes: a) $10,000 in legal fees relating to the restructuring of a debt. b) A brand new airplane costing $65,000 used to service a new route c) Interest on late municipal tax balances of $1,000...

THE CULLUMBER COMPANY LTD. Income Statement Year Ended December 31 2021 2020 Net sales $1,779,530 $1,819,610...

THE CULLUMBER COMPANY LTD. Income Statement Year Ended December 31 2021 2020 Net sales $1,779,530 $1,819,610 Cost of goods sold 1,091,290 1,028,920 Gross profit 688,240 790,690 Operating expenses 521,960 422,530 Profit from operations 166,280 368,160 Interest expense 25,650 18,630 Profit before income tax 140,630 349,530 Income tax expense 42,189 104,859 Profit $98,441 $244,671 THE CULLUMBER COMPANY LTD. Balance Sheet December 31 Assets 2021 2020 Current assets Cash $112,631 $67,485 Accounts receivable 102,723 112,506 Inventory 141,460 123,690 Total current assets 356,814...

The income statement of Packer Inc. for the year ended December 31, 2018, reported the following...

The income statement of Packer Inc. for the year ended December 31, 2018, reported the following condensed information: Revenue from fees..................................... $585,000 Operating expenses................................... 340,000 Income from operations.............................. 245,000 Income tax expense................................... 61,250 Net income................................................. $183,750 Packer's statement of financial position contained the following comparative data at December 31: 2018 2017 Accounts receivable................................... $52,500 $45,000 Accounts payable....................................... 34,000 41,000 Income taxes payable................................. 5,500 3,000 The corporation has no depreciable assets. Accounts payable pertain to operating expenses. Instructions: Using the direct...

Below is the income statement for Red Storm Cleaners for the year ended December 31, 2020....

Below is the income statement for Red Storm Cleaners for the year ended December 31, 2020. During 2020, dividends paid by Red Storm Cleaners were $1,100. Write down the closing entries for Red Storm Cleaners. Red Storm Cleaners Income Statement For the year ended December 31, 2020 Service revenue $60,000 Expenses: Salaries expense 19,600 Repairs and maintenance expense 13,000 Interest expense 5,000 Supplies Expense 2,800 Total expenses 40,400 Net income $19,600

Presented below is an income statement for Crane Company for the year ended December 31, 2020....

Presented below is an income statement for Crane Company for the year ended December 31, 2020. Crane Company Income Statement For the Year Ended December 31, 2020 Net sales $786,000 Costs and expenses: Cost of goods sold 555,000 Selling, general, and administrative expenses 77,000 Other, net 30,000 Total costs and expenses 662,000 Income before income taxes 124,000 Income taxes 37,200 Net income $86,800 Additional information: 1. "Selling, general, and administrative expenses" included a usual but infrequent charge of $8,000 due...

For the year ended December 31, 2021, Norstar Industries reported net income of $655,000. At January...

For the year ended December 31, 2021, Norstar Industries reported net income of $655,000. At January 1, 2021, the company had 900,000 ordinary shares outstanding. The following changes in the number of shares occurred during 2021: April 30 Sold 60,000 shares in a public offering. May 24 Declared and distributed a bonus issue of 5%. June 1 Issued 72,000 shares as part of the consideration for the purchase of assets from a subsidiary. Required: Compute Norstar's earnings per share for...

In its income statement for the year ended December 31, 2017, Sandhill Co. reported the following...

In its income statement for the year ended December 31, 2017, Sandhill Co. reported the following condensed data. Salaries and wages expenses $697,500 Loss on disposal of plant assets $ 125,250 Cost of goods sold 1,480,500 Sales revenue 3,315,000 Interest expense 106,500 Income tax expense 37,500 Interest revenue 97,500 Sales discounts 240,000 Depreciation expense 465,000 Utilities expense 165,000 Prepare a multiple-step income statement. Calculate the profit margin and gross profit rate. (Round answers to 1 decimal place, e.g. 15.2%.) Profit...