Financial Statements Assignment

 Financial Statements Assignment

Instructions/Descriptions

Bellino Limited 2021 Financial Statements Assignment

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Question Description

Bellino Limited began operations on January 1, 2020. During the year, the company purchased equipment in the amount of $820,000. Management had decided to write the equipment off on a straight-line basis over the estimated useful life of 20 years. The company has a December 31 year-end.

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On December 31, 2020, the company’s financial statements showed a net income before income taxes (after deducting depreciation) in the amount of $250,000. Included in this amount is $5,000 of dividends, which will never be taxable as they are dividends from a connected corporation. The company net income also included $20,000 for gain on the disposal of fixed assets. Only one half of this gain or $10,000 is taxable.

The other $10,000 is tax free. The company has also recognized warranty expense for accounting purposes in the amount of $12,000 in the 2020 financial statements. For income tax purposes, warranty expenses are deductible only when paid. In 2020, $10,000 of warranty expenses were paid.

The 2021 financial statements also include $18,000 of revenue that is treated differently for accounting and tax. $9,000 will be taxed in 2021 and the remaining $9,000 in 2022. Capital cost allowance claimed in 2020 on the corporate income tax return was $12,500.

In 2021, Bellino Limited’s financial statements showed net income after deducting depreciation but before income taxes of $582,000. The company did not purchase any operational assets in 2021 so the depreciation was the same as 2020.

Included in these financial statements was a deduction for $12,000 of penalties paid on deficient instalment, which will never be deductible for income tax purposes. In 2021, the financial statements also included a deduction for warranty expenses of $15,000. For income tax purposes a deduction of $15,000 was also allowed for the warranty expenses paid in the 2021 year. For income tax purposes a deduction of $15,000 was allowed for the warranty expenses paid in the 2021year.

Capital cost allowance claimed on the 2021 corporate income tax return was $80,000. The 2021 income statement included $5,000 of expenses, which will not be deductible for tax purposes until 2022.

The income tax rate in 2020 was $22% and rose to 25% in 2021.

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Required:

Calculate the taxable income and taxes payable for 2020 and 2021.

Prepare a schedule showing the temporary differences and the future income tax amounts for 2020 and 2021. Be sure to classify the future tax amounts as assets or liabilities.

Bellino Limited 2021 Financial Statements Assignment

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