In November 2019, after discovering that her bookkeeper, Ponzi Madoff, had been defrauding her, Angela fired him

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Question:

In November 2019, after discovering that her bookkeeper, Ponzi Madoff, had been defrauding her, Angela fired him and took over the bookkeeping responsibilities herself, despite having limited knowledge of accounting. She has produced the following income statement and miscellaneous financial information for the year ended December 31, 2019 and needs your help.

Angie's Amazing Getups Incorporated
Income Statement
Year Ending December 31, 2019

Sales $7,578,903

Cost Of Goods Sold (5,468,752)

Gross profit $2,110,151

Expenses:

General And Administrative Expenses ($852,000)

Amortization Expense ( 550,000)

Interest (8,500) (1,410,500)

Operating Income $ 699,651

Other Income:

Loss On Disposal Of Limited Life Licence ( 17,000)

Interest Income 110,532

Income Before Income Taxes $ 793,183

Income Taxes

Current ($182,000)

Future ( 35,000) ( 217,000)

Net Income

$ 576,183

During your review of Angela's work and last year's tax return for the corporation, you have made the following notes.

1. In the accounting records, the Allowance For Doubtful Accounts was $25,000 at December 31, 2019, and $20,000 at December 31, 2018. During 2019, the company had actual write-offs of $11,750. As a result, the accounting Bad Debt Expense was $16,750. This amount is included in General and Administrative Expenses on the Income Statement.

A review of the listing of receivables (for tax purposes), indicates that the actual items that may be uncollectible total $15,000 at December 31, 2019. In 2018, the company deducted a reserve for bad debts of $13,000 for tax purposes.

2. General And Administrative Expenses include:
Donations To Registered Charities $27,000
Accrued Bonuses - Accrued September 1, 2017, Paid June 15, 2018 78,000

Meals And Entertainment Costs:

$1,000 Per Month For Premium Membership At Golf Club For Angie 12,000

$200 Per Month For Memberships At Golf Club For Salespeople 2,400

$32,000 For Meals While Entertaining Clients 32,000

$5,000 In Food Costs For Angie's Personal Chef For Her Meals At Home 5,000

$6,000 For Annual Summer BBQ For All Staff 6,000

Sponsorship Of Various Theatre Productions That Use Angie's Costumes 100,000

Advertising In A U.S. Theatre Ma azine Directed At U.S. Clients 15,000
New Software Purchased October 1, 2017
($13,000 For Applications And $25 000 For Systems) 38,000
Accounting And Legal Fees For Amended Articles Of Incorporation 6,000
Costs To Attend Annual Convention Of Costume Designers Held In Thailand 17,000

3. Interest Expense consists of the following:

Interest Expense - Operations $5,000

Penalty And Interest For Late And Insufficient Instalment Payments 2,000

Interest On Late Payment Of Municipal Property Taxes 1,500

4. Travel costs (included in General and Administrative costs) include both air travel and travel reimbursement to employees for business travel. The company policy is to reim¬burse employees $0.58 per kilometer for the business use of their automobiles. During the year, seven employees each drove 4,000 kilometers on employment related activities and one employee drove 7,500 kilometers. None of the kilometer based allowances are required to be included in the income of the employees.

5. Maximum CCA has always been taken on all assets. The undepreciated capital cost balances at January 1, 2019 were as follows:

Class 1 (4%) $650,000

Class 8 95,000

Class 10.1 17,850

Class 14 68,000

Class 14.1 Nil

Class 44 65,000

Class 53 135,000

6. During 2019, a limited life licence to produce costumes based on a popular theme park was sold for $63,000. The original cost of this licence was $95,000 and its net book value at the time of sale was $80,000. The licence was the only asset in Class 14.

7. Purchases and sales of equipment and other capital assets made during 2019 were as follows (note: some items are discussed in other sections of this problem). All amounts were capitalized for accounting purposes:

a. The company purchased land and constructed a new building on it during the year. The building will be used 95% for manufacturing and processing. The cost of the land was $350,000, and the building cost $475,000 to construct.

b. The company purchased a new set of furniture for the reception area for $1,200.

c. Some outdated desks used by the finance department with a cost of $5,000 were sold for proceeds of $3,500.

d. Landscaping of the grounds around the new building cost $35,000. This amount was capitalized for accounting purposes.

e. A company car for use by the president of the company was purchased for $90,000. This car replaced the only other existing company car, which was purchased in 2017 for $95,000. The old car was sold for $60,000.

f. A fence around the new building, high enough to prevent the paparazzi from taking pictures of Angela while she was at the office cost $52,000.

8. The company sold some shares that had been purchased several years ago. The capital gain on these shares was $152,708. Angela didn't know how to account for this, so she credited the entire amount to retained earnings.

A minimum Net Income For Tax purposes and Taxable income for the year ending December 31, 2019 ignore GST/HST/PST implications.