The following financial information has been provided for Up & Down Ltd. for its year ended...

 

Transcribed Image Text:

The following financial information has been provided for Up & Down Ltd. for its year ended September 30, 2020. Statement of Income Revenue Depreciation/Amortization Administration and other expenses Net income $7,000,000 (100,000) (3,000,000) $3.900.000 Additional Information: 1. The maximum amount of CCA that can be claimed for the year has been correctly calculated as $80,000 in total. 2. Administration and other expenses includes the following items: a) $20,000 in stock-based compensation expense b) $3,000 in interest on funds borrowed to finance the purchase of new office equipment c) $1,500 in interest paid to the Canada Revenue Agency (CRA) for late income tax instalments d) $22,000 paid for landscaping around the office building e) $13,000 in legal, accounting and printing costs with respect to the issue of a new class of preferred shares f) $40,000 in accounting fees for the annual audit g) $500 in legal fees to collect an account receivable h) $5,000 in legal fees to protect the interest of Up & Down Ltd. in a wrongful dismissal law suit filed against Up & Down Ltd. by a disgruntled former employee $30,000 in donation to registered charities i) j) $22,000 for entertaining clients k) $50,000 for the cost of food and entertainment for the annual Christmas party. All employees are invited to the Christmas party. The cost is less than $100 per employee and, therefore, is not included as a taxable benefit for the employees. 1) $18,000 for golf club dues for sales employees. Many Up & Down Ltd. clients are members of the golf club m) $15,000 for tax-free automobile allowances paid to two employees. The one employee drove 18,000 employment kilometers. The other employee drove 7,000 employment kilometers $10,000 for group term life insurance premiums for employees n) o) $1,100 for premiums for life insurance on the life of the president. Up & Down Ltd. is the beneficiary of the policy. The policy is assigned to the bank. The bank required the life insurance policy as collateral for the operating line of credit provided. p) $5,000 for an advertisement in a foreign magazine that was distributed to the Canadian customers only. q) $50,000 in accrued bonuses. The bonuses were awarded for performance during the year ended September 30, 2020. $30,000 of the bonuses will be paid on January 31, 2021 and the remaining $20,000 will be paid on April 30, 2021. r) $350,000 reserve for additional salary expense. The union contract expired on July 31, 2020 and the bargaining is still in process. A 2% wage increase is expected and, thus, $350,000 has been accrued to cover the 2% increase for August and September 2020. s) t) $4,500 in appraisal fees to determine the replacement cost of the business assets to establish the current year's fire and theft insurance requirements $32,000 of Bad debts expense. $26,000 relates to an increase in the allowance for doubtful accounts balance at September 30, 2020 over September 30, 2019 and $6,000 relates to specific uncollectable accounts that were written off at the year end. Required: (a) For the year ended September 30, 2020, determine business income for tax purposes. (b) List and briefly explain why you omitted any items from your answer in part (a). The following financial information has been provided for Up & Down Ltd. for its year ended September 30, 2020. Statement of Income Revenue Depreciation/Amortization Administration and other expenses Net income $7,000,000 (100,000) (3,000,000) $3.900.000 Additional Information: 1. The maximum amount of CCA that can be claimed for the year has been correctly calculated as $80,000 in total. 2. Administration and other expenses includes the following items: a) $20,000 in stock-based compensation expense b) $3,000 in interest on funds borrowed to finance the purchase of new office equipment c) $1,500 in interest paid to the Canada Revenue Agency (CRA) for late income tax instalments d) $22,000 paid for landscaping around the office building e) $13,000 in legal, accounting and printing costs with respect to the issue of a new class of preferred shares f) $40,000 in accounting fees for the annual audit g) $500 in legal fees to collect an account receivable h) $5,000 in legal fees to protect the interest of Up & Down Ltd. in a wrongful dismissal law suit filed against Up & Down Ltd. by a disgruntled former employee $30,000 in donation to registered charities i) j) $22,000 for entertaining clients k) $50,000 for the cost of food and entertainment for the annual Christmas party. All employees are invited to the Christmas party. The cost is less than $100 per employee and, therefore, is not included as a taxable benefit for the employees. 1) $18,000 for golf club dues for sales employees. Many Up & Down Ltd. clients are members of the golf club m) $15,000 for tax-free automobile allowances paid to two employees. The one employee drove 18,000 employment kilometers. The other employee drove 7,000 employment kilometers $10,000 for group term life insurance premiums for employees n) o) $1,100 for premiums for life insurance on the life of the president. Up & Down Ltd. is the beneficiary of the policy. The policy is assigned to the bank. The bank required the life insurance policy as collateral for the operating line of credit provided. p) $5,000 for an advertisement in a foreign magazine that was distributed to the Canadian customers only. q) $50,000 in accrued bonuses. The bonuses were awarded for performance during the year ended September 30, 2020. $30,000 of the bonuses will be paid on January 31, 2021 and the remaining $20,000 will be paid on April 30, 2021. r) $350,000 reserve for additional salary expense. The union contract expired on July 31, 2020 and the bargaining is still in process. A 2% wage increase is expected and, thus, $350,000 has been accrued to cover the 2% increase for August and September 2020. s) t) $4,500 in appraisal fees to determine the replacement cost of the business assets to establish the current year's fire and theft insurance requirements $32,000 of Bad debts expense. $26,000 relates to an increase in the allowance for doubtful accounts balance at September 30, 2020 over September 30, 2019 and $6,000 relates to specific uncollectable accounts that were written off at the year end. Required: (a) For the year ended September 30, 2020, determine business income for tax purposes. (b) List and briefly explain why you omitted any items from your answer in part (a).

Answer rating: 100% (QA)

a Business income for tax purposes Revenue 7000000 DepreciationAmortization 80000 Administration and other expenses 20000 3000 1500 22000 13000 40000 ... View the full answer