QUESTION # 1 – INCOME TAX (Chapter 18)

Lakeside Co. shows the following almost completed income statement:

Lakeside Co.
Income Statement
For the year ended December 31, 2019

Revenue
Sales $1,500,000
Rent revenue (note 1) 25,000
Dividend revenue (note 2) 15,000 $1,540,000

Expenses
Cost of goods sold 750,000
Selling expenses 295,000
Administration expenses 90,000
Amortization expense (note 3) 55,000
Estimated warranty expense (note 4) 50,000 1,240,000

Income before income tax expense $ 300,000

Notes:
1. On December 30, 2018 the company received $50,000 in advance from a tenant for rent covering
the period January 1, 2019 to December 31, 2020. The entire $50,000 was taxed when received.

2. The dividend revenue is non-taxable. Temp added now deduct

3. Capital cost allowance (CCA) for 2019 is $65,000. Prior to 2019, total CCA claimed has exceeded
total amortization by $40,000.
CCA expense
trials
4. A 3-year warranty program was started by the company during 2019. Actual warranty costs
incurred during 2019 and allowed to be deducted for tax purposes amounted to $20,000. Lakeside
Co. expects the warranty program to be used by customers evenly over the three year period.

5. The income tax rate was 30% for the years prior to 2019 and the new rate enacted in January 2019
for 2019 and future years is 28%.

6. Lakeside Co. follows the ASPE future/deferred income taxes method.

Required:
a) Prepare the journal entries to record all income taxes for 2019.

b) Prepare a partial income statement for the year ended December 31, 2019, starting with “Income
before income tax expense.”

c) Show how all tax accounts will be reported on the December 31, 2019 balance sheet.

ACCT 2208 FINAL REVIEW PACKAGE (Chapters 18, 22, 23) 1

Accounting Income 300,000
Permanent Differences
Deduct Dividend Rev 15,0007

Temporary
Rent
Differences
Revenue 25,000
Ded
Addback amm expense 55,000
Deduct CCA 65,000 101000
Add WE 501000 30,000
Deduct Warr costs 20,000

Taxable Income 2801000

Tax Rate 281

Current Tax Payable
78,400
CT Expense 781400
CT Payable 78,400
Deferred Taxes Taffgbede
Temp
Ammort Bea 2079 no ooo 0,0007 301 12,000
CCA
End 2079 55,000 65,000
Total 55,000 105,0003 28 8,400

Rent Rev

warranty
 QUESTION # 2 – CASH FLOW STATEMENT (Chapter 22)
Following are the financial statements and additional information for Bubbles Company. Bubbles
follows IFRS and has adopted the policy of classifying dividends received as operating activities and
dividends paid as financing activities.

7A use source
asset c
Bubbles Company
Ct Balance Sheet

Tsourse truse
December 31
liab Assets Ct L J
2019 2018

Cash $ 263 $ 92 M 171

Accounts Receivable
Inventory
150
250
180 430
210in 40
decreased
FV-NI Investments 300 400 4100
i sold
Equipment 1,380 500a 880
KrAccumulated depreciation

bough
Total
(280)
$ 2,063
(282)
$ 1,100

M Liabilities and Shareholders’ Equity

Accounts payable $ 110 $ 120 t D

Bonds payable 300 100 R 200
Deferred tax liability 119 70
IT 112
VCommon shares
Retained earnings
1,000
534
450
360
p
Total $ 2,063 $ 1,100

Bubbles Company
Income Statement
For the year ended December 31, 2019

Sales $1,500
Cost of goods sold 980
Gross profit 520
Depreciation expense $ 48
Other expenses 233

Finance
Gain on sale of equipment (20) 261
sold Aneate for Horemheb Net Income $ 259
purchaseof ea't f
Equipment costing $1,080 was bought by paying $530 in cash and issuing common shares for the
remainder of the purchase price. PPE Times or loss
FV-NI Investments were sold for book value. invest ceed
I 9AM
Bonds amounting to $500 were issued for cash.
from Chow much
Finance purchase of b did we
get
REQUIRED: Prepare a statement of cash flows for the year ended December 31, 2019.

ACCT 2208 FINAL REVIEW PACKAGE (Chapters 18, 22, 23) 2

 Bubble co
Statement of Cash Flows
Year End Dec31,2079
Net Income 259
Non Cash adjustments
operating Income
Depreciation expense 48
gain on sale ea't
of invest c 207
gainHoss on sale
Deffered Tax of Liability 49
AIR 30
Ho
inventory
AIP 410

Tofffmcaf
investment Activities 100
proceeds from Invest
Purchase of ea't 1530
proceeds from ea't 170

72603
Finance Activities
EsseaanncEEEonator
Dividends
Dec 857
paid should
Net cash 1714g match
change
V cash beer 92
fafara
Repaym end 263
of bond cash
Boo
 Ea't
500
530 purchase of
550 12 200 ea't
1380
D c Dep
282 DR
Acc Dep
Hoo CR Dep Exp
11 50
280
proceeds
gain 11055 4 NBV
20 K 200 507

E 170
Invest RIE BIP
400 39

µ
as
100 500
53N
x 300
300 300
 QUESTION #3 - CASH FLOW STATEMENT (Chapter 22)
Elf Company shows the following information:
Elf Company
Balance Sheet
As at December 31
2019 2018
Assets
Cash $ 510 $ 900
Accounts Receivable 450 100 4350
Inventory
FV-NI Investments
180
900
125 1
55
150 A 750
Prepaid rent 200 25 A 175
bounhE Land 1,000 - A 1000
Equipment 6,200 1,300 A 4900
bough Accumulated depreciation -- equipment (920) (680)

bouant
Patent (net) 375 80
p 295
Long-term investment (equity investment)
Total $
9,300
18,195 $
5,000
7,000
A 4300
operating Liabilities and Shareholders’ Equity
Accounts payable $ 435 $ 320
Wages payable 2,425 555
Dividend payable 145 200
Bonds payable 3,000 3,000
Discount on bond payable (475) (500)
Common shares 4,000 2,900A 1100
Contributed surplus – donated land 1,000 -
Contributed surplus – repurchase of shares 400 -
Retained earnings 7,265 525
Total $ 18,195 $ 7,000
Other data for 2019:
Equipment costing $800 and depreciated for 25% was sold during the year for a gain of $75.
FV-NI Investments costing $500 were sold for a loss of $100.
Common shares initially issued for $1,500 were repurchased during the year for $1,100.
Dividends for $600 were declared during the year.
Long-term investments (equity method) were purchased for $600 during the year; in addition the
equity investments earned Elf Company $4,700 in net income and $1,000 was paid to Elf
Company for dividends.
A bond payable for $2,000 was redeemed during the year.
Net income for the year ended December 31, 2019 was $7,340.
Amortization expense on the patent amounted to $50.
Elf Company applies IFRS and adopted the policy of classifying dividends received as investing
activities.
REQUIRED: Prepare a cash flow statement for the year ended December 31, 2019

ACCT 2208 FINAL REVIEW PACKAGE (Chapters 18, 22, 23) 3

ACCT 2208 FINAL REVIEW PACKAGE - SOLUTIONS
Question #1 - Income Tax Lakeside Co.

CURRENT INCOME TAXES:

Income before income tax expense, Dec 31/19 (Accounting Income) 300,000
Permanent differences:
Dividend Revenue (15,000) Note 2: Dividend revenue is non-taxble, therefore deductible
285,000
Temporary differences:
Rent in Advance (25,000) Note 1: 50,000 was taxed in 2018 therefore remove rental revenue from acctg income

Amortization Exp. 55,000

CCA (65,000) (10,000) Note 3: Amortization is added back to acctg income, CCA is deducted

Warranty expense 50,000 Note 4: Only actual warranty costs incurred are deductible for tax purposes. Add back acctg expense, deduct
Warranty costs (20,000) 30,000 (5,000) actual costs for tax.
Taxable Income 280,000

Taxable Income 280,000

Tax Rate 28%
Current income taxes 78,400 Current IT Payable
78,400
Dr. Current income tax expense 78,400
Cr. Current Income tax payable 78,400 78,400 to B/S

- All temporary differences will have a deferred income tax affect.

DEFERRED INCOME TAXES:
Deductible /
DT Asset /
Year Acctg basis Tax basis (Taxable) Temporary Rate
(Liability)
Difference
A. Rent in
advance 2018 - 50,000 50,000 30% 15,000 DT Asset - Rent
2019 25,000 15,000 2018
25,000 50,000 25,000 28% 7,000 8,000 Dr. DT Expense 8,000
Current as will 7,000 2019 Cr. DT Asset 8,000
reverse in 2020 to b/s

B. Amortization
vs. CCA 2018 - 40,000 (40,000) 30% (12,000) DT Liability - CCA
2019 55,000 65,000 12,000 2018 Dr. DT Expense 2,000
55,000 105,000 (50,000) 28% (14,000) 2,000 Cr. DT Liability 2,000
14,000 2019
to b/s

C. Warranty 2019 50,000 20,000 30,000 28% 8,400 DT Asset - Warranty

1/2 Current and 1/2 Long-term - 2013 Dr. DT Asset 8,400
as will used evenly over 8,400 Cr. DT Expense 8,400
remaining years 8,400 2014
to b/s

ACCT2208 Final Review Package (Chapters 18, 22, 23) 1 Q1 - Income Tax
 DT Expense (Recovery)
8,000 Rent
2,000 CCA
8,400 Warranty
1,600

B. Prepare a partial income statement

Lakeside Co.
Partial Income Statement
For the year ended December 31, 2019

Income before tax expense 300,000

Income Taxes:
Current 78,400
Deferred 1,600 80,000
Net Income 220,000

C. Balance sheet presentation

Lakeside Co.
Balance Sheet
As at December 31, 2019

Current assets
Deferred tax asset (7,000+4,200) 11,200

Current liabilities
Current income tax payable 78,400

Long-term Liabilities
Deferred tax liability (14,000-4,200) 9,800

ACCT2208 Final Review Package (Chapters 18, 22, 23) 2 Q1 - Income Tax
ACCT 2208 FINAL REVIEW PACKAGE - SOLUTIONS
Question # 2: Bubbles Co.
Bubbles Company
Balance Sheet
As at December 31, 2019

2019 2018 Net Change

Assets
Cash $ 263 $ 92 171
Accounts Receivable 150 180 (30)
Inventory 250 210 40
FV-NI Investments 300 400 (100)
Equipment 1,380 500 880
Accumulated amortization -- equipment (280) (282) 2
Total $ 2,063 $ 1,100 $ 963

Liabilities and Shareholders’ Equity

Accounts payable $ 110 $ 120 (10)
Bonds payable 300 100 200
Deferred income tax liability 119 70 49
Common shares 1,000 450 550
Retained earnings 534 360 174
Total $ 2,063 $ 1,100 $ 963

Bubbles Company
Statement of Cash Flows
For the year ended December 31, 2019

Operating activities
Net income 259
Non-cash adjustments:
Depreciation expense 48
Gain on sale of equipment (note 1 ) (20)
Gain on sale of investment (note 4 ) -
Decrease in A/R 30
Increase in inventory (40)
Decrease in A/P (10)
Increase in Deferred Income Tax Liability 49 57
Cash provided by operating activities 316

Investing activities
Proceeds from sale of equipment (note 3) 170
Proceeds from sale of FV-NI Investment (note 4) 100
Purchase of equipment (530)
Cash used in investing activities (260)

Financing activities
Cash dividend paid (note 6 ) (85)
Repayment of bonds (redemption) (note 5) (300)
Cash proceeds from issuance of bonds 500
Cash provided by financingactivities 115

Net change in cash 171

Cash, beginning of year 92
Cash, end of year 263

Summary of Non-cash transactions:

Equipment costing $1,080 was partially settled by issuing common shares worth $550.

ACCT2208 Final Review Package (Chapters 18, 22, 23) 3 Q2 Bubbles Co

 INVESTING ACTIVITIES

Equipment Accum. Amort - Equip

500 282
530 200 50 48
550
1,380 280

Note 1: Equipment sold Note 2: Accum. Amort on Equipment sold

500+530+550-x = 1380 282+48-x=330
x= 200 x= 50

Note 3: Proceeds on sale

Gain = $ - NBV
20 = $ - (200-50)
$= 170

FV-NI Investments Note 4: Proceeds on sale of FV-NI Investments

400 Gain = $ - NBV
100 0 = $ - 100
$= 100
300

FINANCING ACTIVITIES

Bonds payable Note 5: Cash used to redeem bonds

100 100+500-x = 300
500 x= 300
300
300

Retained Earnings Note 5: Dividends declared & paid

360 360+259-x=534
85 259 x= 85

534

ACCT2208 Final Review Package (Chapters 18, 22, 23) 4 Q2 Bubbles Co

ACCT 2208 FINAL REVIEW PACKAGE - SOLUTIONS
Question# 3: Elf Company
Elf Company
Balance Sheet
As at December 31,

2019 2018 Net Change

Assets
Cash $ 510 $ 900 (390)
Accounts Receivable 450 100 350
Inventory 180 125 55
FV-NI Investments 900 150 750
Prepaid rent 200 25 175
Land 1,000 - 1,000
Equipment 6,200 1,300 4,900
Accumulated depreciation - equip (920) (680) (240)
Patent (net) 375 80 295
Long-term investment (equity investment) 9,300 5,000 4,300
Total $ 18,195 $ 7,000 $ 11,195

Liabilities and Shareholders’ Equity

Accounts payable $ 435 $ 320 115
Wages payable 2,425 555 1,870
Dividend payable 145 200 (55)
Bonds payable 3,000 3,000 -
Discount on bond payable (475) (500) 25
Common shares 4,000 2,900 1,100
Contributed surplus – donated land 1,000 - 1,000
Contributed surplus – repurchase of shares 400 - 400
Retained earnings 7,265 525 6,740
Total $ 18,195 $ 7,000 $ 11,195

ACCT2208 Final Review Package (Chapters 18, 22, 23) 5 Q3 Elf Company
 Elf Company
Statement of Cash Flows
For the year ended December 31, 2019

Operating activities
Net income 7,340
Non-cash adjustments:
Depreciation expense (note 1) 490
Gain on sale of equipment (note 2 ) (75)
Loss on sale of FV-NI investments (note 4) 100
Investment income (equity method) (4,700)
Amortization of bond discount 25
Increase in A/R (350)
Increase in inventory (55)
Increase in prepaid rent (175)
Increase in A/P 115
Increase in wages payable 1,870 (2,755)
Cash provided by operating activities 4,585

Investing activities
Proceeds from sale of equipment (note 2) 675
Proceeds from sale of investment (note 4) 400
Purchase of equipment (note 3 ) (5,700)
Purchase of FV-NI investment (note 5 ) (1,250)
Purchase of patent (note 6) (345)
Purchase of long-term investment (600)
Dividend received from equity investment (note 11 ) 1,000
Cash used in investing activities (5,820)

Financing activities
Cash dividend paid (note 7 ) (655)
Cash used to repurchase common shares (1,100)
Proceeds from issuance of common shares ((note 9) 2,600
Repayment of bonds (redemption) (note 10) (2,000)
Proceeds from issuance of bonds (note 10) 2,000
Cash provided by financingactivities 845

Net change in cash (390)

Cash, beginning of year 900
Cash, end of year 510

Summary of Non-cash transactions:

Land valued at $1,000 was donated.

ACCT2208 Final Review Package (Chapters 18, 22, 23) 6 Q3 Elf Company
 INVESTING ACTIVITIES

Equipment Accum. Amort - Equip

1,300 680 Note 1: Amortization Exp Equip
5,700 800 200 440 680-200+x=920
x = 440
6,200 920 Total amort expense:
440 + 50 490

Note 2: Gain = $ - NBV Note 3: purchase of equip

75 = $ - (800-200) 1300+x-800=6200
$= 675 x= 5,700

FV-NI Investments Note 4: Loss = $ - NBV

150 -100 = $ - 500
1,250 500 $= 400
Note 5: purchase of invest
900 150-500+x=900
x= 1,250

Patent LT Investment (equity) School of business -

Carrie McMillan:
80 5,000 Dividend rec'd from
345 50 4,700 1,000 equity investment
600
375 9,300 School of business -
Carrie McMillan:
Portion of NI received from
Note 6: Purchase of patent equity investment
80+x-50=375
x= 345

ACCT2208 Final Review Package (Chapters 18, 22, 23) 7 Q3 Elf Company
 FINANCING ACTIVITIES

Dividends payable Retained Earnings

200 525
655 600 600 7,340

145 7,265

Note 7: Dividends paid Dividends declared

200+600-x=145 525+7340-x = 7265
x= 655 x= 600

Common shares Cont. Surp -

2,900 Repurchase
1,500 2,600 400

4,000 400

Note 8: Assigned value of common shares

Dr. Common shares 1500
Cr. Cont. Surp - Repurchase 400
Cr. Cash 1,100

Note 9: Issuance of common shares

2900+x-1500=4,000
x= 2600

Bonds payable
3,000 Note 10: Issuance of bonds
2,000 2,000 3000-2000+x=3000
x= 2000
3,000

Note 11: Dividends received from investment (equity) method)

Dr. Cash & Cr. The Investment (equity) asset account.
However, on the statement of cash flows, these need to be
added back to investing activities as this is Elf's policy.

ACCT2208 Final Review Package (Chapters 18, 22, 23) 8 Q3 Elf Company