When adjusting the decommissioning provision at the end of the year for the increase in value due to time, the debit side of the entry under IFRS would be:
a) A related fixed asset
b) A decommissioning obligation
c) An interest expense
d) A depreciation expense
For a decommissioning provision, the present obligation condition is met when:
a) An obligating event can be measured.
b) An obligating event occurs.
c) An obligating event has been budgeted for.
d) Regulators are contemplating a change that will require the company to incur future decommissioning costs.
A decommissioning provision typically requires:
a) No discount rate.
b) An after-tax discount rate.
c) A pre-tax discount rate.
d) A risk-free discount rate.
For each decommissioning provision, at the end of each reporting period:
a) The provision is updated for any changes in the current best estimate of future cash flows, with the adjustment being made to the provision and to the depreciation expense in the current year.
b) The interest costs for the year are added to the cost of the related asset.
c) The provision is recalculated using the current required discount rate, and the adjustment impacts both the provision and the related asset.
d) When cash is paid for the decommissioning costs, the provision is increased by the same amount.
During the year, Guthrie Gasoline Ltd. built a service station in Moncton, New Brunswick. Current engineering estimates show that the best estimate of the cost to decommission the service station after its expected useful life of 20 years is $55,000.
How should Gothry Gasoline Ltd., which follows ASPE, record the decommissioning costs?
a) Decommissioning costs of $55,000 should be discounted and added to the cost of the service station asset. An equal amount for a decommissioning provision should be recorded as a liability in the current year.
b) Decommissioning costs of $55,000 should be added to the cost of the service station asset and an equal amount for the decommissioning provision should be recorded as a liability in the current year.
c) Decommissioning costs should be recorded as an asset and an equal decommissioning provision should be recorded as a liability only when an estimate of the fair value of the liability is known.
d) Decommissioning costs of $55,000 should be expensed and an equal decommissioning provision should be recorded as a liability in the current year.
A future income tax liability is an amount of income tax arising from:
a) Deductible temporary differences
b) The current taxes after deducting instalments paid
c) Taxable temporary differences
d) The carryforward of unused income tax deductions
In fiscal 20X5 and 20X6, Bronco Inc.’s tax rate was 38%. Bronco reports income taxes using the future income tax method under ASPE.
Included in Bronco’s income was warranty expense of $20,000. Bronco made warranty payments of $30,000 during 20X6. The balance in warranty payable at the end of 20X6 was $15,000.
During 20X6, amortization of $30,000 for accounting purposes was expensed and CCA of $40,000 was claimed. There were no additions or disposals of capital assets. The net book value (NBV) of capital assets for the 20X5 year end was $130,000, with a corresponding undepreciated capital cost (UCC) balance of $80,000.
Bronco does not own any land and has not capitalized any leased assets.
What is Bronco’s 20X6 future income tax expense or recovery?
$3,800 future income tax expense
b) $7,600 future income tax expense
c) $7,600 recovery of future income taxes
d) $17,100 future income tax expense
On January 1, 20X6, depreciable assets with a book value of $920,000 and a historical cost of $1,000,000 were recorded on GHI Inc.’s books. CCA totalling $100,000 had been taken on these assets.
During 20X6, GHI recorded depreciation of $80,000 and CCA of $20,000. The 20X6 current and future tax rate is 35%. GHI has a December 31 year end.
For 20X6, the temporary differences arising from GHI’s depreciable assets would result in which of the following?
a) A decrease to income tax expense of $21,000
b) An increase to income tax expense of $7,000
c) A decrease to income tax expense of $7,000
d) A decrease to income tax expense of $14,000.
You, CPA, are the senior auditor assigned to the Truestar Ltd. audit file. You are reviewing Truestar’s financial statements and note that the only items included on Truestar’s balance sheet that have temporary differences for future income taxes are: intangible assets relating to deferred development costs of $20,000, a leased asset of $80,000, and a lease obligation of $69,000. Truestar’s tax rate is 20% and the company uses the future income tax method to account for income taxes. At the end of last year, Truestar’s future income tax liability was $7,000. Calculate Truestar’s future tax expense/recovery for the current year.
a) $3,000 recovery
b) $6,200 expense
c) $4,800 recovery
d) $800 recovery
Pick Up Ltd. (PUL) holds 18% of the common shares of Vines Inc. (VI). PUL is able to appoint three members of VI’s 12-member Board of Directors and is a supplier of raw materials to VI. The remaining 82% of VI’s common shares are widely held. VI is a private company. Assuming PUL reports under ASPE, what are the reporting options for its investment in VI?
a) Equity method
b) Equity method or cost
c) Equity method, cost, or consolidation
d) Fair value through profit or loss (FVTPL) or cost
Bedford Inc. (BI) acquired 25% of the shares of Red Inc. (RI) in the current fiscal year for $150,000 with no fair value differentials. It was determined that BI’s investment in RI should be accounted for using the equity method.
During the year:
BI has yet to process the inventory it purchased from RI. This inventory will be processed next year and the resulting product will be sold to one of BI’s customers.
What should be reported as “investment in RI” on BI’s current-year statement of financial position? Ignore any potential tax consequences.
Company A has significant influence over Company B. Under IFRS, which one of the following factors could cause Company A’s investment account to decrease?
a) Purchase price
c) Net income
d) Unrealized profit in inventory
In 20X6, Vines Inc. (Vines) purchased 40% of the common shares of Bottles Inc. (Bottles). At the time, there were no fair value differentials.
In 20X7, Vines sold inventory to Bottles for $80,000. $25,000 of this remained at year end. This inventory was sold by Bottles in 20X8. Also during 20X8, Vines sold additional inventory to Bottles for $60,000 of which $30,000 remains in inventory. Vines earns a gross profit of 30% on sales of its inventory. Both companies pay income taxes at 25%.
During 20X8, Bottles earned net income of $200,000.
What is the amount of equity income reported by Vines in 20X8?
Accounting net income (determined in accordance with generally accepted accounting principles) of Extec Inc. (Extec) is $456,000. Additional information is as follows:
Based on the information above, determine Extec’s net income for tax purposes for the year.
Which of the following is an adjustment on the Schedule 1 for corporate income taxes?
a) A general reserve for inventory obsolescence of $13,000.
b) $1,100 for the cost of uniforms with the company logo provided to the local peewee soccer team.
c) An accounts receivable allowance of $4,600 for three accounts determined by specifically identifying accounts that may not be collectable.
d) A $50,000 contribution to the company-sponsored defined contribution pension plan (equal to the pension expense reported for the year).
You, CPA, are the controller for an electronics retailer, Future Now Ltd. (Future). You have been asked to prepare a Schedule 1 reconciliation of accounting net income to net income for tax purposes for the current year ended December 31. Which one of the following items will be deducted on the Schedule 1 reconciliation?
a) During the year, Future expensed estimated warranty costs of $39,000.
b) Future deducted $3,800 in interest on its operating line of credit.
c) Future recorded $2,500 of interest charged on late income tax instalments.
d) Future recorded $8,900 of premium amortization on the company’s bonds payable.
ABC Co. recently sold its largest building for $1,123,453. The building had a cost of $877,543 and an undepreciated capital cost (UCC) of $701,456. What are the tax implications of this sale?
a) Terminal loss of $176,087
b) Recapture of $176,087 and capital gain of $245,910
c) Recapture of $176,087
d) Capital gain of $421,997
Cameron Co.’s Class 8 undepreciated capital cost (UCC) balance on January 1, Year 1, was $122,000. During Year 1, it acquired additional Class 8 assets at a cost of $43,700 and sold Class 8 assets for $12,500 (less than original cost). What is the maximum capital cost allowance (CCA) that may be claimed in Year 1?
During the current year, a capital asset that had originally cost $20,000 was sold for $12,000. The opening Class 8 undepreciated capital cost (UCC) balance was $15,000. Assuming there are no assets left in this class, what are the tax consequences?
a) $3,000 terminal loss
b) $3,000 terminal loss and $5,000 capital loss
c) $3,000 recapture
d) Capital cost allowance (CCA) of $600
In 20X7, Telcom Ltd. replaced some of its computers with new computers that were faster and cheaper. The new computers cost $9,000, and old computers that had been purchased in 20X2 were sold for $10,000 ($20,000 original cost). Telcom’s Class 50 opening balance was $17,000. What is the maximum capital cost allowance (CCA) that may be claimed on this class for 20X2?
Assume the following for Mark’s Warehouse Ltd. (Mark’s):
Net income for tax purposes
Net capital losses of other years
During the year, Mark’s sold some shares in a public company for $100,000. The shares cost $60,000. This was the only sale of assets in the year. Mark’s did not earn any interest or dividend income during the year.
What is the correct amount of active business income (ABI) to be used for determining one of the lesser of amounts for the small business deduction for Mark’s for the year?
You have been provided with the following information for Parthenon Ltd. for its current taxation year:
Net income for tax purposes
Taxable capital gains realized
Foreign dividends received
Canadian dividends received
Net capital loss carryover used in the year
Non-capital loss carryover used in the year
Foreign business income earned
What is the correct amount of active business income (ABI) to be used as one of the lesser of amounts for determining the small business deduction for Parthenon for the year?
Dunitall Inc. is a Canadian-controlled private corporation with a December 31 year end. The following amounts have been correctly determined for the current year for Dunitall:
Active business income (ABI)
Aggregate investment income (AII)
The combined federal and provincial corporate income tax rate on income eligible for the small business deduction is 15%, while the combined federal and provincial rate for other ABI is 29%, incorporating the general rate reduction (GRR). The GRR for 2016 is 13%, and the additional refundable tax (ART) rate is 10 2/3%.
What is the correct amount of income tax legally payable for Dunitall for the current year?
Which of the following statements is true?
a) There are no income-splitting opportunities when a business is run as a sole proprietorship.
b) The basic rules for determining net business income are different for proprietorships and corporations.
c) Individual venturers can make different capital cost allowance (CCA) claims against their share of joint venture revenues and expenses, while individual partners cannot make different CCA claims against their net income from the partnership.
d) A capital gains deduction may be claimed against a taxable capital gain that arises on the sale by an individual partner of his or her interest in the partnership.
Which of the following statements is FALSE?
a) In both a partnership and a joint venture, property such as equipment is legally owned by the partnership or the joint venture.
b) Partnerships are normally formed to carry on business over a period of time, while joint ventures are generally formed for a specific project.
c) In a partnership, decisions are normally made over time in agreement with other partners. In a joint venture, the decision-making rights of the individual venturers are specified in the joint venture agreement.
d) Net income of a partnership is allocated to individual partners on the basis of the partnership agreement. Revenues and expenses of a joint venture are allocated to individual venturers on the basis of the joint venture agreement.
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