Question

Spring Time Corp. has income before tax expense of $150,000 for 2019. $25,000 dividends were received in 2019. This amount is not taxable. A $5,000 fine expensed in 2019 is not deductible for tax purposes. CCA allowed for tax purposes in 2019 was $75,000; depreciation expense recorded in 2019 was $90,000. For years before 2019, total depreciation expense was higher than total CCA by $50,000. QUESTION On the reconciliation between accounting income and taxable income, how would the $5,000 non-deductible fine be shown? Select one: a. deduct $5,000 under temporary differences b. deduct $5,000 under permanent differences c. add $5,000 under temporary differences d. add $5,000 under permanent differences e. do not show on the reconcilation

1. Spring Time Corp. has income before tax expense of $150,000 for 2019.  
2. $25,000 dividends were received in 2019. This amount is not taxable.
3. A $5,000 fine expensed in 2019 is not deductible for tax purposes.
4. CCA allowed for tax purposes in 2019 was $75,000; depreciation expense recorded in 2019 was $90,000.
5. For years before 2019, total depreciation expense was higher than total CCA by $50,000.

QUESTION

On the reconciliation between accounting income and taxable income, what is the total adjustment needed

in 2019 for the depreciation and CCA amounts.  

Select one:

a. deduct $15,000

b. add $15,000

c. add $35,000

d. add $50,000

e. add $65,000

Answer 1

Adjustment of fine expense of $5,000 in reconciliation: -

Amount of $5,000 of fine expense shall be added back to accounting income for the computation of taxable income as a permanent difference. Because this expense is not allowable in taxation hence the difference in income of accounting and taxation will also remain in future periods, hence it shall be considered as permanent difference.

Total Adjustment: -

1) $5,000 of fine - added back as permanent difference

2) Depreciation of $75,000 in 2019 is allowed as deduction against taxable income as maximum CCA is $75,000 only for 2019. Hence Excess depreciation of earlier year of $50,000 and of current year 2019 of $15,000 (90,000 -75,000) will be carried forward to next year for adjustment.