Examination # 2g.XYZ Income$250,000Amortization of PPDInventory(50,000)PPE: $200,000 / 10 years(20,000)Patent: $100,000/ 10 years(10,000)Bonds: $150,000 / 6 years(25,000)145,000x 30%$43,500
CMA Accelerated ProgramPage 18
Examination # 2CMA Accelerated ProgramPage 19Question 3Net income before taxes$1,400,000Add:Depreciation$1,000,000Warranty expense (10,000,000 x 2%)200,000Pension expense (Note 1)282,000Non deductible portion of entertainment expenses:$90,000 x 1/245,000Taxable capital gain: $30,000 x 1/215,0001,542,000Less: CCA (Note 2)1,018,500Warranty costs incurred (Note 3)163,000Gain on disposal of fixed assets30,000Pension payments to trustee200,000Equity income50,000-1,461,500Taxable income$1,480,500Note 1 - Pension expenseCurrent service cost$250,000Interest on pension obligation: $1,200,000 x 8%96,000Interest on plan assets: $800,000 x 8%-64,000$282,000Note 2 - CCAClass 8Class 10Class 43UCC - beginning$2,500,000$1,900,000$150,000Additions300,000250,000Lesser of cost or proceeds-40,000-100,000-250,000CCA/Recapture526,000592,500-100,000Note 3 - Warranty Costs Incurred:$67,000Opening Warranty Liability+ 200,000Warranty Expense- 104,000Ending Warranty Liability= $163,000
Examination # 2CMA Accelerated ProgramPage 20Question 4Calculation of Current Portion of Income Tax Expense -20x320x420x5Net income before taxes$1,000,000$1,200,000$1,350,000Timing differences -Depreciation200,000200,000200,000CCA-150,000-255,000-178,500Warranty expense400,000Warranty costs incurred-400,000Taxable income$1,450,000$745,000$1,371,500x 34%x 30%x 30%$493,000$223,500$411,450DIT Account - end 20x3NBV/UCC Difference: (800,000 - 850,000) x 34%$17,000Dr.Warranty liability: 400,000 x 34%136,000Dr.DIT account, end 20x3= DIT portion of income tax expense (credit)$153,000DIT Account - end 20x4NBV/UCC DifferenceNBV: $800,000 - 200,000$600,000UCC: 850,000 - 255,000595,0005,000DIT Account, end 20x4x 30%1,500Cr.Less DIT Account - end 20x3153,000DrDIT portion of income tax expense (debit)154,500DIT Account - end 20x5NBV/UCC DifferenceNBV: $600,000 - 200,000400,000UCC: 595,000 - 178,500416,50016,500x 30%4,950Dr.Less DIT Account - end 20x41,500Cr.DIT portion of income tax expense (credit)6,450
Examination # 2CMA Accelerated ProgramPage 21Partial Income Statements20x320x420x5Net income before taxes$1,000,000$1,200,000$1,350,000Provision for income taxesCurrent493,000223,500411,450Deferred-153,000154,500-6,450340,000378,000405,000Net Income$660,000$822,000$945,000Partial Balance SheetsNon Current AssetsDeferred Income Taxes$153,000$4,950Long-term liabilitiesDeferred Income Taxes$1,500
Examination # 2CMA Accelerated ProgramPage 22Question 5a.Purchase price imputed at 100%: $2,000,000 / 0.70$2,857,143Net assets acquired1,500,000Acquisition differential1,357,143Allocation – Building200,000Goodwill$1,157,143Acquisition Differential Amortization Schedule -BalanceAmortizationBalanceDec 31, x1x2 – x4x5Dec 31, x5Building$200,000$(42,858)$(14,286)$142,856Goodwill1,157,143(71,429)(57,143)1,028,571$1,357,143$(114,287)$(71,429)$1,171,427Pasco Profit$510,000Less dividends: $150,000 x 70%(105,000)Sasco’s net income$240,000Amortization of acquisition differential(71,429)168,571x 70%118,000Profit attributable to the equity holders of Pasco$523,000b.Current assets ($3,000,000 + 2,000,000)$5,000,000Long-term assets ($6,000,000 + 3,500,000– 2,000,000Investment in Sasco+ 1,171,427PPD - Building & Goodwill)8,671,427Liabilities ($5,000,000 + 3,800,000)(8,800,000)Common stock(2,100,000)Retained earnings (schedule)(1,909,999)Noncontrolling Interest (1,700,000 + 1,171,427) x 30%(861,428)Connsolidated Retained Earnings – Dec 31, 20x5:Pasco R/E, Dec 31, 20x5$1,900,000Sasco R/E, Dec 31, 20x5$700,000Sasco R/E at acquisition500,000Post acquisition increase200,000Amort PPD ($114,287 + 71,429)(185,716)14,284x 70%9,999$1,909,999
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