Problem
Sunland Services Ltd. follows ASPE and had earned accounting income before taxes of $520,000 for the year ended December 31, 2023.
During 2023, Sunland paid $77,000 for meals and entertainment expenses.
In 2020, Sunland's tax accountant made a mistake when preparing the company's income tax return. In 2023, Sunland paid $10,500 in penalties related to this error. These penalties were not deductible for tax purposes.
Sunland owned a warehouse building for which it had no current use, so the company chose to use the building as a rental property. On January 1, 2023 Sunland rented the building to Trung Inc. for two years at $64,500 per year. Trung paid the entire two years' rent in advance.
Sunland used the straight-line depreciation method for accounting purposes and recorded depreciation expense of $286,200. For tax purposes, Sunland claimed the maximum capital cost allowance of $431,400. This asset had been purchased at the beginning of the year for $3,004,400.
In 2023, Sunland began selling its products with a two-year warranty against manufacturing defects. In 2023, Sunland accrued $306,100 of warranty expenses: actual expenditures for 2023 were $88,200 with the remaining $217,900 anticipated in 2024.
In 2023, Sunland was subject to a 25% income tax rate. During the year, the federal government announced that tax rates would be decreased to 23% for all future years beginning January 1, 2024.