Sunrise Ltd. (the Company) has a fiscal year ending December 31. For the year ending December

Sunrise Ltd. ("the Company") has a fiscal year ending December 31.\r\n

For the year ending December 31, 2019, the Company\'s income statement shows net income of $233,000. The information in the following notes has already been reflected in the above income statement.\r\n
 \r\n
The following amounts were deducted in computing accounting net income:\r\n
1.      Provision for income taxes:\r\n
a.      Current: 35,500\r\n
b.      Future: 15,800\r\n
2.      Increase in warranty reserve on company\'s product                  7,300\r\n
3.      Amortization expense recorded in the financial statements (The maximum\r\n
CCA for the year has been correctly determined to be $19,270.)        14,900\r\n
4.      Landscaping expense paid in the year                                           2,935\r\n
5.      Interest on bank loan obtained for the purpose of purchasing common \r\n
shares in Rainbow Inc., a dividend-paying Canadian corporation          6,300\r\n
6.      Advertising costs for newspapers in the United States. The advertising was \r\n
primarily directed at the Canadian market                                             7,100\r\n
7.      Legal and accounting fees related to issue of shares                30,000\r\n
8.      Meals and entertainment for clients                                              2,500\r\n
9.      Donation to United Way                                                                   2,200\r\n
10.  Premium on term insurance on life of president with the corporation as\r\n
beneficiary; policy was not required to be assigned as collateral for \r\n
corporate borrowing from the bank                                              9,375\r\n
11.  Management bonuses ($3,800 of this total bonus expensed in 2019, \r\n
and shown as \'\'Bonus Payable\'\' on the Balance Sheet as at December 31,\r\n
2019 has not been paid at the time of filing the corporate tax return on \r\n
June 30, 2020)                                                                                  14,000\r\n
12.  Fees to dispute an income tax assessment                                   8,500\r\n
 \r\n
The following item was included in the financial accounting statements in arriving at accounting net income:\r\n

 Amount received from an insurance company on its business interruption  Insurance to compensate for loss of profits when company was closed  down for a month during the year because of a fire  29,500\r\n
 \r\n
A)     Based on the foregoing information, compute the net income (Division B income) for tax purposes, for Sunrise Ltd. in respect of its 2019 fiscal year. Show all of your work whether or not you feel it is relevant to your final answer. \r\n
\r\n
B)     (i) Explain, in words, why each of the following items from Part A is deductible, or not, in calculating the Company\'s net income for tax purposes. You can use point form. \r\n
Amortization expense\r\n
Interest on bank loan\r\n
Advertising costs for newspapers\r\n
Meals and entertainment\r\n
Legal and accounting fees on issue of shares\r\n
Donation to United Way\r\n
Premium on term insurance\r\n
$3,800 of unpaid management bonuses\r\n
 \r\n
(ii) Explain the income tax treatment of the warranty costs on the company\'s product. \r\n
\r\n

Answer rating: 100% (QA)

A Adjusted net income 309600 3 B i Each item is explained below ii Warranty costs The cost ie the fi... View the full answer