ACCT-4021EL Chapter Notes - Chapter 5: Capital Cost Allowance, Capital Cost, European Cooperation In Science And Technology

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14 Oct 2018

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The two sets of procedures use different terms to describe items that are analogous. While the amounts involved will be different, the underlying concepts are the same. Accountants record an acquisition cost for each material asset acquired. The cost is recorded as the amount of consideration given up to acquire the asset, including all costs directly attributable to the acquisition. The capital cost of acquired assets will be allocated to what is referred to as a class. These classes are, in most cases, broadly defined. In general, the amount of capital cost to be recorded is the same number that would be recorded as the acquisition cost in the accounting records. The net book value of the asset disposed of is subtracted from the proceeds of that disposition. If the result is positive, a gain is recorded. If the result is negative, a loss is recorded. Amortization is based on the consistent application of gaap.

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Hot Weelz Ltd., which beganoperations in January 2015, follows IFRS and is subject to a 30%income tax rate. In 2018, the following events took place:

a) The company switched from the zero-profit method to thepercentage-of-completion method of accounting for its long-termconstruction projects. This change was a result of experience withthe project and improved ability to estimate the costs tocompletion and therefore the percentage complete.

b) Due to a change in maintenance policy, the estimated usefullife of Hot Weelzâs fleet of trucks was lengthened.

c) It was discovered that a machine with an original cost of$220,000, residual value of $30,000, and useful life of four yearswas expensed in error on January 23, 2017, when it was acquired.This situation was discovered after preparing the 2018 adjustingentries but before calculating income tax expense and closing theaccounts. Hot Weelz uses straight-line depreciation and takes afull year of depreciation in the year of acquisition. The assetâscost had been appropriately added to the capital cost allowance(CCA) class in 2017 before the CCA was calculated and claimed.

d) As a result of an inventory study early in 2018 after theaccounts for 2017 had been closed, management decided that theweighted average cost formula would provide a more relevantpresentation in the financial statements than the FIFO costformula. In making the change to weighted average cost, Hot Weelzdetermined the following:

Date	InventoryâFIFO Cost	InventoryâWeighted Average Cost
Dec. 31, 2017	$ 80,000	$ 65,000
Dec. 31, 2016	115,000	85,000
Dec. 31, 2015	180,000	135,000

Required:

1. Analyze each of the four 2018 events described above. Foreach event, identify the type of accounting change that hasoccurred, and indicate whether it should be accounted for with fullretrospective application, partial retrospective application, orprospective application.

2. Prepare any necessary journal entries that would be recordedin 2018 to account for events C (ignore income tax considerations)and D.

Norton Forms Excel Problem (dont have the excel form)

Norton Forms is a Canadian controlled private corporationspecializing in designing and printing custom business forms. It isowned by Viola Norton. For the taxation year ended December 31,2018, Ms. Norton 's daughter, Linda, who works in the business, hascalculated a Net Income for Norton Forms of $576,183. Incalculating this figure, Linda used generally accepted accountingprinciples.

Linda has produced the following Income Statement for the yearended December 31, 2018:

Norton Forms Inc.

Income Statement?

Year ending December 31, 2018

Sales---$$ 7,578,903

Cost of Goods Sold ---$5,468,752

Gross Profit ---$2,110,151

Expenses

General and Admin ---$852,000

Amortization Expense ---$550,000

Interest ---$8,500-------------- Total $1,410,500

Operating Income -------------$699,651

Other Income:

Loss on Disposal of Intangible Assets ---$ (17,000)

Interest Income?---$110,532

Income before income taxes ---$793,183

Income Taxes

Current ---$182,000

Future---$ 35,000 -----------Total $217,000

Net Income ------------------ Total $576,183

During your review of Linda's work and last year's tax returnfor the corporation, you have made the following notes:

1. In theaccounting records, the Allowance for Doubtful Accounts was $25,000at December 31, 2018, and $20,000 at December 31, 2017.

During 2018, the company had actual write-offs of $11,750. As aresult, the accounting Bad Debt Expense was $16,750. This amount isincluded in General and Admin expenses on the Income statement.

2. A reviewof the listing of receivables (for tax purposes), indicates thatthe actual items that may be uncollectible total $15,000 atDecember 31, 2018. In 2017, the company deducted a reserve for baddebits of $13,000 for tax purposes.

3. Generaland Admin Expenses include:

a) Donations to registeredcharities $27,000

b) Accrued Bonuses - Accrued Sept 1, 2018. Paid June 15,2019 $78,000

Meals and entertainment costs:

c) $1,000 per month for premium membership at golf club forViola $12,000

d) $200 per month for membership at golf club forsalespeople $2,400

e) Meals while entertaining clients $32,000

f) Food costs for Viola's personal chef for her meals athome $5,000

g) Annual summer BBQ for all staff $6,000

h) Sponsorship of local baseball team where company name isprominently displayed on front of jersey $15,000

i) Advertising in a US trade magazine directed at USclients $ 100,000

j) New software purchased October 1, 2018. ($13,000 forapplications and $25,000 for systems) $38,000

k) Accounting and legal fees for amended to the articles ofincorporation $6,000

l) Costs to attend annual convention of finger knitters inThailand. While at the convention, Viola was sure to hand outbusiness cards and talk to other attendees about her business withthe intention of claiming the convention as a businessexpense. $17,000

4. Interest expense consists of the following:

a) Interest expense - operations $ 5,000

b) Penalty and interest for late and insufficient instalmentpayments $ 2,000

c) Interest on late payment of municipal property taxes$1,500

5. Travel costs (included in general and admin expenses) includeboth air travel and travel reimbursement to employees for businesstravel. The company policy is to reimburse employees $0.58 perkilometer for the business use of their automobiles. During theyear, seven employees each drove 4,000 on employment relatedactivities and one employee drove 7,500 kilometers. None of thekilometer based allowances are required to be included in theincome of the employees.

6. Maximum CCA has always been taken on all assets. Theundepreciated capital cost balances at January 1, 2018 were asfollows:

Class 1 (4%)------$650,000

Class 8-----------$95,000

Class 10.1------$17,850

Class 14-----$68,000

Class 14.1-----$18,098

Class 53-----$135,000

Class 44-----$65,000

7. There was a loss on disposal of a limited life license toproduce copyrighted materials for a major distributor. This licenseoriginally cost the company $95,000, and it was sold for $63,000 in2018. The book value of the license at the time of sale was$80,000. When the license was sold, it was the only asset in itsCCA class. The loss was claimed as a loss on disposal of intangibleassets on the Income Statement.

8- Purchases and sales of equipment and other capital assetsmade during 2018 were as follows. (Note: any items discussed inother sections are included in this list as well)

A)The company purchased land and constructed a new building onit during the year. The building was used 95% for manufacturing andprocessing. The cost of the land was $350,000, and the buildingcost $475,000 to construct.

B)The company purchased a new set of furniture for the receptionarea for $1,200.

C)Some outdated desks used by the finance department with a costof $5,000 were sold for proceeds of $3,500.

D)Landscaping of grounds around the new building cost $35,000.This amount was capitalized for accounting purposes.

E)A company car for use by the president of the company waspurchased for $90,000. This car replaced the only other existingcompany car, which was purchased in 2013 for $95,000. The old carwas sold for $60,000.

F)A fence around the new building cost $52,000.

G)New software was purchased: $13,000 for Applications and$25,000 for Systems.

9- The company sold some shares that had been purchased severalyears ago. The capital gain on these shares was $152,708. Lindadidn't know how to account for this, so she credited the entireamount to retained earnings.

Required:

Determine Norton Forms' minimum Net Income for Tax Purposes forthe year ending December 31, 2018. Ignore GST/HST/PSTimplications.

Using Excel spreadsheet, indicate your rationale for thetreatment of all information given. (dont have the excel, dont knowhow to submit)

ambergiraffe255

Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companyâs accountants make adjusting entries monthly, and they make all closing entries annually. The company is growing rapidly and prides itself on having no long-term liabilities.

The company has provided the following trial balance dated December 31, 2018.

MUSIC-IS-US, INC.
TRIAL BALANCE
DECEMBER 31, 2018
Cash	$	45,000
Marketable securities		26,000
Accounts receivable		130,000
Allowance for doubtful accounts			$	5,100
Merchandise inventory		256,000
Office supplies		1,900
Prepaid insurance		7,040
Building and fixtures		1,794,000
Accumulated depreciation				797,000
Land		66,800
Accounts payable				69,000
Unearned customer deposits				7,800
Income taxes payable				75,000
Capital stock				960,000
Retained earnings				238,200
Unrealized holding gain on investments				5,100
Sales				1,651,340
Cost of goods sold		953,000
Bank service charges		200
Uncollectible accounts expense		8,300
Salary and wages expense		392,000
Office supplies expense		300
Insurance expense		6,000
Utilities expense		3,000
Depreciation expense		44,000
Income tax expense		75,000
	$	3,808,540	$	3,808,540

Other information pertaining to the companyâs trial balance is provided as follows.

1. The most recent bank statement reports a balance of $47,175. Included with the bank statement was a $2,400 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The bankâs monthly service charge was $25. Three checks written by Music-Is-Us to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 508, $4,100; no. 511, $9,400; and no. 521, $7,900. Deposits of $16,800 reached the bank too late for inclusion in the current bank statement. The company prepares a bank reconciliation at the end of each month.

2. Music-Is-Us has a portfolio of marketable securities that originally cost $20,000. As of December 31, the market value of these securities was $28,800. All short-term investments are classified as "available for sale."

3. During December, $6,100 of accounts receivable were written off as uncollectible. A recent aging of the company's accounts receivable led management to conclude that an allowance for doubtful accounts of $8,200 is needed at December 31, 2018.

4. The company uses a perpetual inventory system. A year-end physical count revealed that several guitars reported in the inventory records were missing. The cost of the missing units amounted to $1,300. This amount is not considered significant relative to the total cost of inventory on hand.

5. At December 31, approximately $830 in office supplies remained on hand.

6. The company pays for its insurance policies 12 months in advance. Its most recent payment was made on November 1, 2018. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.

7. Depreciation expense related to the company's building and fixtures is $4,000 for the month ending December 31, 2018.

8. Although Music-Is-Us carries an extensive inventory, it is not uncommon for experienced musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom-made guitars. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled âUnearned Customer Deposits.â As of December 31, $4,000 of these deposits remained unfilled because the special-order guitars have not been received from the manufacturer. The cost of goods sold and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is delivered to customers. At that time, the adjusting entry requires only a decrease to unearned customer deposits and an increase in sales.

9. Accrued income taxes payable for the entire year ending December 31, 2018, total $81,000. No income tax payments are due until early in 2019.

Please Prepare:

A Bank Reconciliation

Journal Entries

Adjusting Entries

lemonbee147

ACCT-4021EL Chapter Notes - Chapter 5: Capital Cost Allowance, Capital Cost, European Cooperation In Science And Technology

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