Olivia Smith carries on a landscaping business as a sole proprietor. The business began opera- tions...

 

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Olivia Smith carries on a landscaping business as a sole proprietor. The business began opera- tions on January 2, 2021, and has a December 31 year end. The 2021 and 2022 results for the business can be described as follows: 2021 During its first year, the business had sales of delivered merchandise and services totalling $185,000. Of this total, $65,000 are shown as accounts receivable on December 31, 2021. Olivia anticipates that $5,000 of the receivables are doubtful of collection. In addition to these sales of delivered merchandise and services, she received $23,000 in advances for merchandise to be delivered in 2022. Olivia purchased a large supply of landscaping materials from the trustee of a bankrupt landscaping business at a very good price. Since she is unlikely to use them in the next few years, she has arranged to sell these materials for $50,000. The sale takes place in September 2021. These materials have a cost of $40,000, resulting in a total gross profit of $10,000. Because of the size of this sale, she has agreed to accept a down payment of $30,000, followed by two annual instalments of $10,000. The instalments are due on December 31, 2022, and December 31, 2023. 2022 During 2022, $5,500 of accounts receivable were determined to be bad and were written off. All of the merchandise for which advances had been received was delivered and the $10,000 instalment on the 2021 sale of landscaping materials was received. Sales of delivered merchandise and services totalled $240,000. Of this total, $50,000 are shown as accounts receivables at December 31, 2021. Olivia anticipates that $3,500 of this amount will be doubtful of collection. In addition to the 2022 sales of delivered merchandise and services, she receives $13,400 in advances for merchandise to be delivered in 2023. Required: How would the preceding information affect the calculation of Olivia Smith's busi- ness income for the 2021 and 2022 taxation years? Include the full details of your calculations, not just the net result for each year. Olivia Smith carries on a landscaping business as a sole proprietor. The business began opera- tions on January 2, 2021, and has a December 31 year end. The 2021 and 2022 results for the business can be described as follows: 2021 During its first year, the business had sales of delivered merchandise and services totalling $185,000. Of this total, $65,000 are shown as accounts receivable on December 31, 2021. Olivia anticipates that $5,000 of the receivables are doubtful of collection. In addition to these sales of delivered merchandise and services, she received $23,000 in advances for merchandise to be delivered in 2022. Olivia purchased a large supply of landscaping materials from the trustee of a bankrupt landscaping business at a very good price. Since she is unlikely to use them in the next few years, she has arranged to sell these materials for $50,000. The sale takes place in September 2021. These materials have a cost of $40,000, resulting in a total gross profit of $10,000. Because of the size of this sale, she has agreed to accept a down payment of $30,000, followed by two annual instalments of $10,000. The instalments are due on December 31, 2022, and December 31, 2023. 2022 During 2022, $5,500 of accounts receivable were determined to be bad and were written off. All of the merchandise for which advances had been received was delivered and the $10,000 instalment on the 2021 sale of landscaping materials was received. Sales of delivered merchandise and services totalled $240,000. Of this total, $50,000 are shown as accounts receivables at December 31, 2021. Olivia anticipates that $3,500 of this amount will be doubtful of collection. In addition to the 2022 sales of delivered merchandise and services, she receives $13,400 in advances for merchandise to be delivered in 2023. Required: How would the preceding information affect the calculation of Olivia Smith's busi- ness income for the 2021 and 2022 taxation years? Include the full details of your calculations, not just the net result for each year.