Question 1

On December 31, 2014, XYZ Inc. has an account payable of $2,000 for operating expenses incurred during the year. These expenses are only tax deductible when paid. XYZ normally pays for its operating expenses one month after they are incurred. Assuming a 20% tax rate, these expenses shall result in:

Accepted Answer

The expenses are deductible for tax purposes when paid, creating a temporary difference. The deferred tax asset is calculated as $2,000 * 20% = $400.

Question 2

SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the Deferred Tax Asset or Liability on December 31, 2014?

Accepted Answer

The book depreciation is $1,500 per year ($30,000/20 years). For tax, the CCA for 2013 is $3,000 (half-year rule: $30,000 * 20% * 0.5) and for 2014 is $5,400 ($27,000 * 20%). The tax base is lower than the book value, creating a deferred tax liability. The difference in depreciation for 2013 and 2014 is $5,400 - $3,000 = $2,400. The tax effect is $2,400 * 25% = $600. The deferred tax liability for 2014 is $1,350 ($600 from 2013 + $750 from 2014).

Question 3

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. What is John's portion of any unrealized gain or loss arising from the transfer of John's assets to Jinxtor on January 1, 2013?

Accepted Answer

John's portion of any unrealized gain or loss arising from the transfer of John's assets to Jinxtor on January 1, 2013, is $90,000. This is calculated as follows:Unrealized gain or loss = (Fair value of assets transferred - Book value of assets transferred) * Percentage of ownershipFair value of assets transferred = $3,000,000Book value of assets transferred = $2,100,000Percentage of ownership = 70%Unrealized gain or loss = ($3,000,000 - $2,100,000) * 70%Unrealized gain or loss = $900,000 * 70%Unrealized gain or loss = $90,000

Question 4

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $240,000 in return for investing its plant and equipment. What would be the unrealized gain arising from this transaction?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Question 5

SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the temporary difference between straight line depreciation and capital cost allowance on December 31, 2013?

Accepted Answer

The temporary difference is the difference between the book value and the tax value of the asset. The book value is depreciated straight-line over 20 years, while the tax value is depreciated using a capital cost allowance rate of 20%. The half-year rule applies, so the capital cost allowance for the first year is 10%. The temporary difference is the difference between the book depreciation and the capital cost allowance, which is $3,000 - $2,000 = $1,500.

Question 6

On December 31, 2014, XYZ Inc. has an account receivable of $2,000 for consulting fees it earned during the year. Consulting revenues are only taxable when collected. XYZ normally receives payment for the services rendered one month after the client is invoiced. Assuming a 20% tax rate, these revenues shall result in:

Accepted Answer

Consulting revenues are only taxable when collected. So, the deferred tax liability is calculated as the difference between the book value of the account receivable and its tax basis. The book value is $2,000, and the tax basis is $0 because the revenue has not yet been recognized for tax purposes. Therefore, the deferred tax liability is $2,000.

Question 7

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $200,000 in return for investing its plant and equipment. What would be the amount of the unrealized gain?

Accepted Answer

The unrealized gain is the difference between the fair value of the plant and equipment and the carrying value of the plant and equipment. The fair value of the plant and equipment is $200,000, and the carrying value of the plant and equipment is $150,000. Therefore, the unrealized gain is $50,000.

Question 8

Which of the following is NOT used as a quantitative threshold to determine that an operating segment is reportable under IFRS 8?

Accepted Answer

Under IFRS 8, the quantitative thresholds for determining reportable segments include revenue, profit or loss, and assets, but not expenses.

Question 9

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. What is Victor's portion of any unrealized gain or loss arising from the transfer of John's assets to Jinxtor on January 1, 2013?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Question 10

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $240,000 in return for investing its plant and equipment. What would be the immediately recognizable gain arising from this transaction?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Question 11

SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the Deferred Tax Asset or Liability on December 31, 2013?

Accepted Answer

The book depreciation is $1,500 ($30,000/20 years). For tax, the depreciation is $3,000 (half-year rule: $30,000 * 20% * 0.5). The tax base is lower, creating a deferred tax liability: ($3,000 - $1,500) * 25% = $375.

Question 12

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $200,000 in return for investing its plant and equipment. What would be the recognizable gain on January 1, 2013 arising from Jinxtor's investment?

Accepted Answer

The recognizable gain is the difference between the fair value of the plant and equipment ($200,000) and its book value (5 years of depreciation at $50,000 per year = $250,000). The recognizable gain is therefore $50,000.

Question 13

Which of the following is not a requirement for a business component to be considered an Operating Segment under current Canadian GAAP?

Accepted Answer

Under current Canadian GAAP, the requirement for a business component to be considered an Operating Segment includes the availability of discrete financial information, regular review by the enterprise's Chief Operating Decision Maker, and engagement in business activities from which it may earn revenues and incur expenses. However, there is no specific requirement for the reportable income or loss to be at least 10% of the combined profit or loss for the combined entity. This is a requirement under US GAAP but not under Canadian GAAP.

Question 14

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $240,000 in return for investing its plant and equipment. What would be the recognizable gain arising from this transaction on December 31, 2013?

Accepted Answer

The recognizable gain is calculated based on the proportionate share of the investment received. Since John Inc has a 70% stake, the gain is 70% of $240,000, which is $168,000. However, the gain is recognized over the remaining useful life of the asset, which is 5 years. Therefore, the annual recognizable gain is $168,000 / 5 = $33,600. Since the transaction occurred at the end of the year, the gain for 2013 is $33,600. However, the question asks for the gain arising from the transaction, which is the initial cash received minus the book value of the asset. Assuming the book value is zero, the gain is $240,000, but since the options provided do not match this, the closest option is $24,900, which might be a typographical error in the question or options.

Question 15

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor Joint Venture remain unchanged except that John receives $200,000 in return for investing its plant and equipment. What would be the recognizable gain on December 31, 2013 arising from Jinxtor's investment?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Question 16

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. What is the amount of the amortization of the unrealized gain for 2013 arising from the transfer of John's assets?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Question 17

SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the tax basis of these assets on January 1, 2013?

Accepted Answer

The tax basis of the assets on January 1, 2013, is the original purchase price, which is $30,000.

Question 18

SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the temporary difference between straight line depreciation and capital cost allowance on December 31, 2014?

Accepted Answer

The answer of SNZ Inc. purchased machinery and equipment in...

Question 19

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. At what amount would John record its initial investment in Jinxtor?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Question 20

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $240,000 in return for investing its plant and equipment. What would be the impact of this transaction?

Accepted Answer

The answer of John Inc and Victor Inc for its...

Quiz 9: Other Consolidation Reporting Issues

On December 31, 2014, XYZ Inc. has an account payable of $2,000 for operating expenses incurred during the year. These expenses are only tax deductible when paid. XYZ normally pays for its operating expenses one month after they are incurred. Assuming a 20% tax rate, these expenses shall result in:

Which of the following is NOT used as a quantitative threshold to determine that an operating segment is reportable under IFRS 8?

Which of the following is not a requirement for a business component to be considered an Operating Segment under current Canadian GAAP?

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. At what amount would John record its initial investment in Jinxtor?