Below are the details from the accounting records of Nelson Wagner, (dba Fall Guy Product Sales) who has done a very good job of bookkeeping but lacks the skill and experience to determine his business income from this venture.

Carefully analyze each of these items and determine what effect it has or needs to have on the business income. His 2020 income before any of these adjustments was $100,000 (exactly). Determine what amount he needs to include in his business income. You may want to describe for each item why you treated it the way you did. Start with the accounting income and show ALL adjustments.

These are his notes:

1. Fall Guy Product Sales has $35,000 owed to it from its customers, Nelson has indicated he has not written off any of that amount off as a bad debt. Your analysis does not show any specific accounts that are bad, but you know that a 5% allowance should be made for possible bad debts. (Note: there has been no accounting adjustments made)
2. Fall Guy Product Sales has an amount of $10,000 in unearned revenue that is for future services it will provide. (Note: this will not affect the net, but it is treated differently, so show it)
3. Fall Guy Product Sales has depreciated several assets during the year with total depreciation expense of $42,000.
4. Capital Cost Allowance is calculated (by you), for the year, the maximum CCA is $66,000.
5. Business Meal expenses of $6,000 were recorded by Fall Guy Product Sales.
6. Fall Guy Product Sales recorded the disposal of one asset during the year, it created an accounting gain of $7,000 even though it was sold for less than its original cost. The sale created a CCA recapture of $1,800.
7. Fall Guy Product Sales has paid for the Ledgeview Golf and Country Club dues for several employees so that can close deals on the course with clients. The total fees were $3,000 and did not include any meals.
8. Fall Guy Product Sales has made a provision for warranty expenses (correctly applying the matching principle) in the amount of $24,000.
9. Fall Guy Product Sales made actual warranty payments of $13,000 to repair or replace their products.
10. Fall Guy Product Sales leases an automobile (an Audi) for its salesperson. The lease payments have all been deducted from the accounting income above. The lease payments (not including tax or insurance) were $855 per month and were paid all year. The lease began on January 1, 2020. The car had a list price of $52,100.

Answer rating: 100% (QA)

Answer 1 Fall Guy Product Sales has 35000 owed to it from its customers Nelson has indicated he has not written off any of that amount off as a bad debt Your analysis does not show any specific accoun... View the full answer