GHI Inc. has a taxation year that ends on December 31st. The following information has been supplied
Question:
GHI Inc. has a taxation year that ends on December 31st. The following information has been supplied to you by the accountant.
1. For the year ending December 31, 2020, the company’s accounting statements showed a Net Income of $278,000.
2. A total of $123,000 was deducted as income tax expense.
3. The company also reported a Gain on sale of Long-term Investments $20,000.
4. For the year ending December 31, 2020. The Company recorded $83,000 in amortization expense. Maximum available CCA for this period were $97,000.
5. The company issued new shares during 2020. The underwriting fees amounted to $17,000. The accountant expensed the entire amount.
6. The bond interest expense that is included in the accounting records includes $3,200 in discount amortization. (1)
7. The 2020 accounting expenses include $1,500 for the premiums on a life insurance policy on the life of the Company’s president. The Company is the beneficiary of this policy. One of the Company’s major creditors requires that this policy be in force during all periods in which there are loan balances outstanding (1)
8. Last year’s reserve for doubtful accounts (on 2019 Tax Return) was $12,500. During the year, $8,000 in accounts receivable were written off. It has been determined that this year’s reserve should be set at $14,100. (2)
9. The Company’s accounting expenses included a payment of membership dues in a local golf club of $2,500. The cost of entertaining clients at this club during the year ending December 31, 2013 was $9,600. (2)
10. The company leased a Lexus luxury automobile for the president’s use in 2012. The lease payments were $11,000 for 2020. The lease payments were expensed. The Lexus was used 100% for Business use for the whole year and has a suggested list price of $90,000. (2)
11. $7,000 in legal fees from the company’s lawyer was charged to legal expenses. The invoice showed the following services were received: Collection of customer’s account $5,000 Defended company president in a law suit with her former employer over unpaid bonuses $2,000. (2) 12. Ace Limited purchased an unlimited life patent for a new process. They paid $20,000 for the patent and the accountant placed the cost of the patent under Research and Development expense. (2)
13. As the company was late in making its required income tax instalments, it was required to pay interest of $400 and a penalty of $5,000. Both items were charged to Interest expense (2)
14. Included in income is $21,000 in dividends received from a Canadian controlled private corporation.
15. The Company made $60,000 in charitable donations that were not expensed in the accounting records.
Calculate GHI Limited’s Net Income for Tax Purposes and Taxable Income for 2020. Show details of your calculations for each of the above items and briefly explain why items were not included in your calculation. Make sure each item in the additional information is addressed in the company’s Schedule
Expert Answer:
Answer Net Income for Tax Purposes 278000 Taxable Income for 2020 The companys Net Income for Tax Pu... View the full answer
