Michelle Huang runs a rapidly expanding cosmetics store in Penticton as a sole proprietorship. She has provided

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Question:

Michelle Huang runs a rapidly expanding cosmetics store in Penticton as a sole proprietorship. She has provided you with the following information:
Income statement To Dec 31, 2019

Sales $ 520,000

COGS $ (350,000)

Gross profit $ 170,000

Sales, general & admin $ (60,000)

Amortization $ (20,000)

loss on sale of building $ (15,000)

Net income before income tax $ 75,000

Provision for income taxes $ (13,000)

Net income after income taxes $ 62,000

Other information:

(a) The fixed assets information for the company is as follows:

a. UCC balances at January 1, 2019 were as follows: i. Class 1 (Single building) $200,000 ii. Class 8 (Multiple assets) $ 60,000 iii. Class 10 (Multiple assets) $ 80,000

b. During the year Michelle had the following transactions: i. On September 8th, 2019 a new building was purchased for $700,000. The cost of the related land was an additional $400,000. It cost $20,000 to pave part of the land for use as a parking lot, for accounting purposes the $20,000 was added to the cost of the land. Although she will be using most of the building for her business it qualifies as a rental property for CCA purposes. Her first tenant began renting at the end of December and she included the amount in sales.
This problem is very loosely based on a Wolters Kluwer textbook question
ii. On December 8th, 2019 the original building was sold for $220,000. The original cost of the building was $400,000 and the net book value was $235,000. iii. New furniture and fixtures were purchased for $25,000 on October 15th, 2019. This purchase replaced office furniture which was sold for its $4,000 net book value (original cost $10,000)

(b) Michelle is eligible for the personal and spousal tax credits. Her spouse’s NITP for the year is $3,000.

(c) She contributed $13,000 to her RRSP in June 2019. The entire amount is deductible.

(d) The $13,000 accounting provision for income taxes has not yet been paid.

(e) Michelle has a non-capital loss of $25,000 and a net capital loss of $5,000 available from her 2018 tax return.

Please do the following (and ignore provincial taxes and provincial credits):

1. Calculate Michelle’s UCC at Jan 1, 2020 after considering additions, disposals and CCA for 2019. 2. Calculate Michelle’s net income for tax purposes using the S3 ordering rules 3. Calculate taxable income 4. Calculate taxes payable before credits 5. Calculate taxes payable after credits 6. Provide Michelle’s filing and payment dates