Below is the Statement of Income for PFD (Personal FlotationDevices Inc.) for the year ended of December 31st 2020 prepared inaccordance with IFRS. Revenue: Sales $785,000 Service Fees 175,000Total Revenues $960,000 Cost of Goods Sold: Inventory, beginning ofthe year $250,000 Goods purchased 550,000 Goods available for sale$800,000 Less, ending inventory 200,000 600,000 Gross Profit$360,000 Expenses: Selling Commissions $ 22,000 Insurance 8,000Amortization, building, equipment and goodwill 20,000 Legalexpenses 10,000 Interest 5,000 Advertising and promotion 45,000Salaries and wages 100,000 Employee benefits 22,000 Donations 5,000Repairs and maintenance 20,000 Warranty costs 8,000 Bad-debtexpense 15,000 280,000 Income before income taxes $ 80,000Additional information:

1. Ending inventory in addition to being valued at the lower ofcost or market has been reduced by a reserve of $6,000 foranticipated further decline.

2. Insurance expense include a $2,000 premium for life insuranceon the company President. The proceeds of this policy are payableto the company. The remaining insurance amounts relate to insurancefor property damage and liability from their products.

3. Amortization has been calculated in accordance withreasonable estimates of each asset’s useful life.

4. Included in the legal expenses line item is $6,000 paid as afinder’s fee for obtaining 10 year long term debt.

5. The advertising and promotion amount includes $10,101 paid toWRIF a Detroit, Michigan based radio station for radio ads. Alsoincluded in the account is $4,000 for club memberships in sportsrelated faculties for the purpose of enhancing businesscontacts.

6. Donations are all paid to registered charities.

7. Actual warranty costs paid on valid warranty claims totalled$6,000 8.CCA for buildings, equipment and goodwill has beencorrectly calculated as $23,000

Required: 15 Marks Determine and present PDF’s income frombusiness for federal income tax purposes. Reference to sections ofthe Income Tax Act are not required, but your calculation must besupported with an explanation for the adjustments required.

Answer rating: 100% (QA)

Answer To determine PFDs income from business for federal income tax purposes the following adjustments need to be made to the Statement of Income pre... View the full answer