2.a) Given the following income statement, calculate the values for Buildings (C
ID: 1116193 • Letter: 2
Question
2.a) Given the following income statement, calculate the values for Buildings (CCA Class 1) and Office Equipment (CCA Class 8) that would be listed on the Balance Sheet as assets on December 31, 2015 Assume that this is not the first year the company has claimed depreciation expenses for these assets, and that the company is applying the maximum allowable CCA in 2016. (b) What would have been the company's income taxes payable had they not claimed the depreciation expenses? Assume the tax rate remains unchanged Income Statement for the Year ending December 31, 2016 Revenues Sales Cost of Goods Sold Net Revenue from sales $421,400 $311,250 $110,150 Expenses Salaries Bad Debts Advertising Interest Insurance Office Supplies Other expense Depreciation expense, Buildings Depreciation expense, office equipment Total Expenses $69,025 $1,100 $2,500 $500 $600 $2,025 $7,000 $900 $850 $84,500 $25,650 $9,350 $16,300 Income Before Taxes Income taxes Income after taxesExplanation / Answer
Answer:
a. Calculation of value for building:
The maximum allowable CCA rate is 10%. The depreciation expense for the year 2016 as given in the income statement is $900. The depreciation expense is calculated on the value of the building as on December 31, 2015. Calculate the value as on that date:
% = $9,000.
Calculation of the value of equipment:
The maximum allowable CCA rate is 20%. The depreciation expense for the year 2016 as given in the income statement is $850. The depreciation expense is calculated on the value of the equipment as on December 31, 2015. Calculate the value as on that date:
% = $4,250.
b. Calculation of income tax payable had the depreciation expense not been claimed:
It is given that the tax rate remains unchanged. So, first calculate income tax rate from the information available. Income tax is calculated on income before taxes. Thus, from the information given in the income statement the rate of income tax can be arrived at :
= 36.45%
Now, calculate the income before tax assuming the depreciation expense is not claimed which means the depreciation expense has to be added back to the value of income before tax given in the income statment. Revised income before income tax = $25,650 + $900 + $850 = $27,400.
Caculate income tax on the revised income before taxes:
=$9,987.3.
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