BC Baking Solutions Ltd (BCBS) operates a wholesale baking business in British Columbia. On October 1, 2020, the company acquired the assets of a manufacturing business in order to produce some of its existing product lines. The net profit for the year ended December 31, 2020, is $200,000 as follows:

	Income/(Loss)
Wholesale division	$335,000
Manufacturing division	(40,000)
Other	38,000
Provision for income taxes	(133,000)
Net Income	$200,000

Information relating to the income statement above is summarized below.

1.    Other income includes the following:

Gain on sale of furniture         $ 9,000.

Interest                                    29,000

                                                $38,000

2.    Included in the expenses are as follows:

Installation costs for new computer system                           $1,200

Amortization/depreciation of tangible assets                          58,000

Reserve for bad debts                                                            24,000

Reserve on a potential loss from a lawsuit against                12,000

the company by a customer for late product delivery

Advertising & promotion includes the following:

            Memberships at recreational clubs                            4,800

            Newspaper advertisements                                        6,400

Amortization of manufacturing licence                                   8,000

Amortization of research and development costs                  5,600

Legal fees for revising manufacturing licence agreement     2,000

3.    After acquiring the manufacturing business, BCBS paid an engineering firm $22,000 to research and develop a new product. The cost is being amortized over several years.

4.    At December 31, 2019, the following properties had undepreciated capital cost:

5.    On October 1, 2020, the manufacturing business was acquired, and the following assets were included:

Class 38	$60,000
Class 10	120,000
Class 12	3,000
Class 14.1	23,000

Manufacturing equipment	$80,000
Goodwill	100,000
Licence	50,000

The licence permitted BCBA to produce a patented product in exchange for a royalty. The licence had 3 years remaining.

6.    On December 31, 2020, BCBS sold all its Class 38 assets to a leasing company for $70,000 under a sale/leaseback arrangement. The item originally cost $130,000. The CCA class to which the item belongs has no other assets in it.

7.    On September 1, 2020, BCBS purchased a computer and some accounting software. The price paid was $28,000, as follows:

Computer                    $20,000

Accounting software       8,000

Required:

a.    Determine BCBS’s net income for tax purposes as at December 31, 2020. (12 marks)

b.    Next year, BCBS’s management is planning to renovate their leased office space to accommodate their growing administrative team. There will be 2 years remaining on a 3-year lease with the option to renew for an additional two years. Provide a brief summary of the impact this renovation may have in calculating net income for tax purposes. (3 marks)

Answer rating: 100% (QA)

a BCBSs net income for tax purposes as at December 31 2020 is 197200 b The renovation will result in ... View the full answer