Sheila Ram is a professional engineer. In 20X7, she sold her consulting business and retired. Her financial information for the year 20X7 is outlined below.
1. On January 1, 20X7, Ram sold her engineering consulting business to a senior employee. The business had been operated as a franchised proprietorship with a December 31 fiscal year end. The following assets were sold:

The sale agreement called for cash proceeds for all assets, except the franchise, which required a down payment of $20,000 at closing, with the balance payable on June 30, 20X8.

The accounts receivable of $90,000 were not sold but were retained by Ram for collection. During 20X7, Ram collected $82,000 of the receivables. The remainder is uncollectible.

On August 15, 20X7, Ram paid $4,000 to a former employee for a bonus awarded on December 31, 20X6. A review of Ram’s 20X6 income tax return showed the following:

Undepreciated capital cost:    

      Class 8 ……………………………………………          $ 6,800

      Class 14 ……………………………………………        24,000

Cumulative eligible capital…………………………………  20,460

Reserve for bad debts             ………………………………………10,000

Unused listed personal property loss……………………      800

2.  In January 20X7, Ram sold her home for $230,000. She had acquired the house in 20X0 for $200,000. In May 20X7, she sold her Ontario vacation home, which she had acquired in 20X3 for $50,000, for $140,000. She also sold an oil painting for $1,400 that originally had cost $600.

3. Also, in 20X7, she received $30,000 from the sale of her 10% interest in Q Ltd., a Canadian-controlled private corporation. She had purchased the shares in 20X0 for $50,000. Q operates a small manufacturing business, and at the time of sale, its assets were appraised as follows:

Working capital ………………………………          $200,000

Manufacturing assets………………………………  300,000

Goodwill ………………………………                    100,000

Government bonds (three-year term) 200,000

4. In 20X7, Ram withdrew $45,000 from her RRSP.

Required:

Determine Ram’s net income for tax purposes for the 20X7 taxation year.

Transcribed Image Text:

Original cost Goodwil1 Franchise Library Office equipment Price 40,000 50,000 1,000 4,000 38,000 2,000 12,000