Vertin Ltd. is a Canadian public company that has always used a December 31 year-end. However, as December is a very busy time for their business activities, it has requested a change in their taxation year-end to July 31, a date on which their business activity is at the low point for the year. They have presented this situation to the CRA and the Department has accepted their request for change.

The change will be implemented during 2017 resulting in a short fiscal period ending July 31, 2017. The Company's Income Statement, prepared in accordance with GAAP, for the period January 1, 2017, through July 31, 2017, is as follows:

	Vertin Ltd. Income Statement 7 Month Period Ending July 31, 2017
Sales (All Within Canada)		$1,796,600
Cost of Sales		($973,400)
Gross Margin		$823,200
Other Expenses (Excluding Taxes)
Wages and Salaries	($108,200)
Amortization	(194,200)
Rent	(113,400)
Interest Expense	(13,200)
Foreign Exchange Loss	(7,600)
Travel and Promotion	(86,300)
Bad Debt Expense	(6,200)
Warranty Expense	(7,400)
Charitable Donations	(8,100)
Other Operating Expenses	(51,200)	(693,400)
Operating Income		$129,800
Gain on Sale of Investments		7,800
Income Before Taxes		$137,600

Other Information:

1. Wages and salaries include a $28,000 bonus to Vertin Ltd.'s CEO. Because she anticipates retiring at the end of 2018, the bonus will not be paid until January 2019.

2. In determining the Cost of Sales, the Company deducted a $23,400 reserve for inventory obsolescence.

3. Amortization is on a Class 1 building, Class 8 furniture and fixtures, and Class 10 delivery vehicles. The following information is relevant for the determination of CCA for the 7 month period ending July 31, 2017.

Building January 1, 2017, UCC for the building was $872,000. In 2017, the company spent $42,000 on improved flooring in all areas of the property. The building was not a new building when it was acquired.

Furniture and Fixtures January 1, 2017, UCC balance for Class 8 was $285,000. In 2017, new furniture was acquired at a cost of $40,600. Old furniture with a capital cost of $28,200 was sold for $17,600.

Delivery Vehicles On January 1, 2017, the Class 10 UCC balance was $198,300. There were no additions or disposals in this Class during the 7 month period ending July 31, 2017.

4. The interest expense relates to a line of credit that was used to finance seasonal fluctuations in inventory.

5. The foreign exchange loss resulted from financing costs related to the purchase of merchandise in the United Kingdom

6. The travel and promotion expenses consisted of the following items

Business Meal and Entertainment	$32,400
Hotels and Airfare	$28,600
Golf Club Memberships	$12,100
Total Travel and Promotion Expenses	$73,100

7. For accounting purposes, the company establishes a warranty reserve based on estimated costs. On January 1, 2017, the reserve balance was $8,200. On July 31, 2017, a new reserve was established at $7,400.

8. The accounting gain on the sale of investments is equal to the capital gain for tax purposes.

9. During the period January 1, 2017, through July 31, 2017, the Company declared and paid dividends of $31,400.

10. On January 1, 2017, the Company has available a $24,600 non-capital loss carry forward and a $7,200 ((1/2)($14,400)) net capital loss carryforward

Required:

Calculate the minimum Net Income for Tax Purposes and Taxable Income for Vertin Ltd. for the 7 month period ending July 31, 2017. Indicate the amount and type of any carryforwards that will be available for use in future years.

Answer rating: 100% (QA)

Income before taxes 137600 wages and salaries 28000 ... View the full answer