Marigold Services has provided the following information for use in determining

Question

Marigold Services has provided the following information for use in determining its income tax obligations related to the year ended December 31, 2017 For the Year Ended December 31, 2017 Revenue Service Revenue nd Revenue M. de Received Life Insurance Proceeds Received 5854,000 44,000 96,000 Total Revenue $994, Operating Expenses Office Expenses 22,000 91,000 22,000 17,000 39,000 24,000 7,800 344,000 51,000 Depreciation Expense Meals and Entertainment ExpenseExpense Litigation Expense Life Insurance Premiums Paid Salaries and Wages Expense Warranty Expense Total Operating Expense Incoem From Operations 617,800 $376,200 Additional Information: 1. Marigold is publicly owned, and uses IFRS. It has an income tax rate of 25%. 2. During the year warranty expense of $51,000 was accrued. $10,200 of this amount was paid in cash during 2017, This is the first year Marigold offers warranties on services rendered. 3. Property, plant, and equipment was purchased for $546,000 on January 1, 2016. These assets are being depreciated on a straight line basis over six years with no residual value. For tax purposes the assets are classified as Class 8, 20%. [The half-year rule was used for 2016] 4. Marigold pays for life insurance policies for its top executives. During 2017, one of the executives died, and the company received a payment of $96,000 from the life insurance company. 5. On July 1, Marigold was sued by a competitor. Although the lawsuit has not been finalized, management believes that it is probable that a settlement will eventually be reached for $24,000. 6. on November 15, $31,000 was received from customer for three months of service, beginning on November 15, One half of this amount was included in revenue for 2017 7. On December 1, one of the company executives received a speeding ticket for $120. The company paid the ticket for the executive, and recorded the cost as an office expense " Question 1

Explanation / Answer

The income statement with adjustments are as below :-

Now, Adjustment Entry

Hence

Taxable Income = $401,780

Taxes Payable = $100,445

Marigold Services Income Statement for the year ended December 31, 2017 Particulars Given Adjustments Adjusted Dr Cr Dr Cr Dr Cr Revenue 6 Service Revenue $854,000 $15,500 $869,500 Dividend Revenue Received $44,000 $44,000 4 Life Insurance Preceeds received $96,000 $96,000 Operating Expenses 7 Office Expenses $22,000 $120 $22,120 3 Depreciation Expense $91,000 $91,000 Advertising Expense $22,000 $22,000 Meals & Entertainment $17,000 $17,000 Expense Rent Expense $39,000 $39,000 5 Litigation Expense $24,000 $24,000 Life Insurance Premiums Paid $7,800 $7,800 Salaries & Wages Expense $344,000 $344,000 2 Warranty Expense $51,000 $10,200 $40,800 Total Revenue $1,009,500 Total Operating Expense $607,720 Income from Operations (Income before Tax / Taxable Income) $401,780 1 Income Tax Payable (25%) $100,445 Income After Tax $301,335

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