Which of the following is not an adjustment on the Schedule 1 for corporate income taxes?
a) A taxable capital gain on the sale of a depreciable fixed asset
b) A capital loss on the sale of a depreciable fixed asset
c) An accounting gain on the sale of marketable securities
d) An accountin...
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Denning [Date] [Course title]
,Which of the following is not an adjustment on the Schedule 1 for corporate income taxes?
a) A taxable capital gain on the sale of a depreciable fixed asset
b) A capital loss on the sale of a depreciable fixed asset
c) An accounting gain on the sale of marketable securities
d) An accounting write-down on the decline in value of marketable securities Answer: b) is correct.
This is not a Schedule 1 adjustment. A capital loss on the sale of a depreciable fixed asset is not
permitted for tax purposes.
M&N Co., a portable electronics manufacturer, had net income for accounting purposes before tax for
the current year ending December 31 of $375,000. During the year, the company received eligible
dividends from taxable Canadian corporations in the amount of $15,600 and spent $125,400 on the
development of a new product. The total of the development costs have been included in a deferred
development cost account in the balance sheet. M&N had a warranty accrual balance of $23,000 at the
beginning of the year and a warranty accrual balance of $18,000 at the end of the year. On the income
statement, M&N shows a warranty expense of $15,000. Determine the company's net income for tax
purposes for the current year.
a) $229,000
b) $244,600
c) $264,600
d) $370,000 Answer: b) is correct. $375,000 net income for accounting purposes before tax -
$125,400 development costs - $23,000 opening warranty accrual + $18,000 closing warranty accrual =
$244,600.
Which of the following is an adjustment on the Schedule 1 for corporate income taxes?
a) A general reserve for inventory obsolescence of $13,000.
b) $1,100 for the cost of uniforms with the company logo provided to the local peewee soccer team.
c) An accounts receivable allowance of $4,600 for three accounts determined by specifically identifying
accounts that may not be collectable.
d) A $50,000 contribution to the company-sponsored defined contribution pension plan (equal to the
pension expense reported for the year). Answer: a) is correct. General reserves (estimated reserves)
are not deductible for tax purposes and must be added back on the Schedule 1.
Answer: b) is incorrect. The cost paid to sponsor a local sports team is considered an advertising
expense and is fully deductible.
, Melanie Jones is the proprietor of MJ Enterprises, an unincorporated business. Financial statements for
her business have been prepared in accordance with GAAP/ASPE. Which of the following items is
adjusted for in the reconciliation of financial statement income to self-employment income for tax
purposes?
a) Accounting gains on the sale of business assets
b) Allowable capital losses on disposal of depreciable capital assets
c) An amount Melanie withdrew from the business bank account for personal purposes
d) Child-care expenses Answer: a) is correct. Accounting gains on the sale of business assets are
deducted, and taxable capital gains and recapture, if applicable on such sales, are added for tax
purposes.
Answer: c) is incorrect. This amount would not have been expensed in determining net income under
GAAP/ASPE. It would be a reduction in Melanie's capital account.
CBV Ltd. had net income for accounting purposes before taxes of $200,000 for the current year ended
December 31. The following amounts were deducted in determining this amount:
$25,000 for an estimated contingent liability related to a lawsuit
$21,500 in allowances paid to commissioned salespersons for entertaining clients
$980 for late payment of property taxes
The capital cost allowance claim is equal to depreciation deducted in the income statement. Determine
the company's net income for tax purposes for the current year.
a) $235,750
b) $225,000
c) $211,730
d) $225,980 Answer: b) is correct. $200,000 accounting income + $25,000 contingent liability =
$225,000. The contingent liability for the lawsuit is not deductible because it is a reserve that is not
allowed for tax purposes. Interest on late payment of property taxes is deductible because nothing in
the ITA indicates it is not (it is not an amount payable under the ITA). The allowance for entertaining
clients is fully deductible, as it would be a taxable benefit to the commissioned salespersons.
You, CPA, are the controller for an electronics retailer, Future Now Ltd. (Future). You have been asked to
prepare a Schedule 1 reconciliation of accounting net income to net income for tax purposes for the
current year ended December 31. Which one of the following items will be deducted on the Schedule 1
reconciliation?
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