You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company's income tax position based on the following:

Pretax accounting income was $64 million and taxable income was $11 million for the year ended December 31, 2018.

The difference was due to three items:

Tax depreciation exceeds book depreciation by $50 million in 2018 for the business complex acquired that year. This amount is scheduled to be $70 million in 2019 and to reverse as ($60 million) and ($60 million) in 2020, and 2021, respectively.

Insurance of $9 million was paid in 2018 for 2019 coverage.

A $6 million loss contingency was accrued in 2018, to be paid in 2020.

No temporary differences existed at the beginning of 2018.

The tax rate is 40%.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. Assume the enacted federal income tax law specifies that the tax rate will change from 40% to 35% in 2020. When scheduling the reversal of the depreciation difference, you were uncertain as to how to deal with the fact that the difference will continue to originate in 2019 before reversing the next two years. Upon consulting PricewaterhouseCoopers' Comperio database, you found:

.441 Depreciable and amortizable assets
Only the reversals of the temporary difference at the balance sheet date would be scheduled. Future originations are not considered in determining the reversal pattern of temporary differences for depreciable assets. FAS 109 [FASB ASC 740–Income Taxes] is silent as to how the balance sheet date temporary differences are deemed to reverse, but the FIFO pattern is intended.

You interpret that to mean that, when future taxable amounts are being scheduled, and a portion of a temporary difference has yet to originate, only the reversals of the temporary difference at the balance sheet date can be scheduled and multiplied by the tax rate that will be in effect when the difference reverses. Future originations (like the depreciation difference the second year) are not considered when determining the timing of the reversal. For the existing temporary difference, it is assumed that the difference will reverse the first year the difference begins reversing.

Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.

You are a financial Planner making over $500 an hour. The CEO and COO of Facebook ask you to write up an employee benefits/retirement plan for their employees. Facebook’s goal is to attract and retain qualified, creative and driven employees. Facebook is also interested in making money for the company and increasing their profit margin for the benefit of the shareholders.

SCENARIOS 2                    

You are the CEO of a sports wear garments company with its head offices located in Shanghai. More than 70% of your sales comes from the online store. For the past few months your sales are declining. On preliminary research you find that you have been receiving complaints from the customers regarding the delayed delivery of garments as compared to the competitors’ prompts delivery.

The scenario bothers you and you decide to get a deeper insight into the problem through a research study.

QUESTION 2                                                                                                                                                                                       [25 marks]

Since you wish to attain deeper insight into the problem, critically discuss the methods you would use to determine your research problem? Substantiate your answer by applying methods suggested.

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.

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

QUESTION 2 [Total = 15 marks]

Sports-R-Us Ltd runs a highly successful retail sporting business with stores in major shopping centres in metropolitan areas throughout Australia. It has come to the attention of Hannah, a substantial shareholder in Sports-R-Us that the company is sourcing merchandise produced in Erewhon, a developing country recovering from a civil war. She also learns that labour practice relied on in Erewhon is low wages, forced labour and low standards of workplace health and safety, but that there are otherwise limited employment opportunities. Nonetheless, she would like a members’ meeting to be held and a resolution to be passed by the shareholders at that meeting instructing the Board of Sports-R-Us to cancel any contracts they have for the purchase of merchandise produced in Erewhon.

(a) Can Hannah call such a meeting and can the shareholders pass such a resolution?

(b) Would you answer be different if the resolution was to remove the directors?

One of your duty as employee of Wanlap Company is to prepare the cash budget for the
period from 1 January to 30 June 2020.

Use the following information to assist you in preparing that budget:

-80 per cent are credit sales; 80 per cent of credit sales will be collected in the next
month; 15 per cent will be collected 60 days after sales and 4 per cent more will be
collected 90 days after sales. The company had to bear one per cent of credit sales
as uncollectable debt (bad debt).

-Purchases made every month are 65 per cent of sales forecasted for the next
month. Payment for these purchases will only be made one month after purchase.

-The company intends to maintain a minimum cash balance of RM300,000. The
cash balance on 1 January is RM300,000.

-The company expects the delivery of a new machine in the month of April.
Payment of RM400,000 will be made after delivery had been done.

-Payment for tax of RM500,000 will be made in the month of March and June.

-Rental of RM100,000 per month. Other cash expenditure is 3 per cent of sales.

-The depreciation expenses are RM150,000 per month.

-Labor expenses are 10 per cent of sales for the next month.

-The company’s board of directors intends to maintain the dividend payment of
RM450,000 that will be made in the month of June.

-Sales in the month of October are RM3,000,000 and RM2,000,000 in the months
of November and December 2019 respectively.

-Sales forecast for the first seven months in the year 2020 is as follows:

-The company will make interest payments in the month of June for RM310,000.

Prepare the following:
(A)Forecasted Cash Received schedule.

(B)Forecasted Monthly Cash Payment schedule.

(C) Cash Budget from January until 30 June 2020.

One of your duty as employee of Wanlap Company is to prepare the cash budget for the
period from 1 January to 30 June 2020.

Use the following information to assist you in preparing that budget:

-80 per cent are credit sales; 80 per cent of credit sales will be collected in the next
month; 15 per cent will be collected 60 days after sales and 4 per cent more will be
collected 90 days after sales. The company had to bear one per cent of credit sales
as uncollectable debt (bad debt).

-Purchases made every month are 65 per cent of sales forecasted for the next
month. Payment for these purchases will only be made one month after purchase.

-The company intends to maintain a minimum cash balance of RM300,000. The
cash balance on 1 January is RM300,000.

-The company expects the delivery of a new machine in the month of April.
Payment of RM400,000 will be made after delivery had been done.

-Payment for tax of RM500,000 will be made in the month of March and June.

-Rental of RM100,000 per month. Other cash expenditure is 3 per cent of sales.

-The depreciation expenses are RM150,000 per month.

-Labor expenses are 10 per cent of sales for the next month.

-The company’s board of directors intends to maintain the dividend payment of
RM450,000 that will be made in the month of June.

-Sales in the month of October are RM3,000,000 and RM2,000,000 in the months
of November and December 2019 respectively.

-Sales forecast for the first seven months in the year 2020 is as follows:

-The company will make interest payments in the month of June for RM310,000.

Prepare the following:
(A)Forecasted Cash Received schedule.

(B)Forecasted Monthly Cash Payment schedule.

(C) Cash Budget from January until 30 June 2020.

Use the following Adjusted Trial Balance and Statement of Retained Earnings to prepare the CLASSIFIED BALANCE SHEET for Hang in There Company for April 30, 2020

Hang in There Company

Statement of Retained Earnings

April 30, 2020

Retained Earnings, May 1, 2019                   $18,200

Net Income for the Year         10,200

Dividends0        

Retained Earnings, April 30, 2020                  $28,400

Haaland Company depreciates an asset with an original cost of $8,000 over 5 years using the sum-of-the-years digits’ method of depreciation. The asset was purchased on July 1, 2020 and the depreciation expense for 2020 is $1,250. What is the estimated salvage value of the asset?