Royal West Airlines Ltd.

Income Statement

For the Year Ended December 31, 2020

Sales revenue $2,561,096

Cost of sales (1,003,860)

Gross margin $1,557,236

Other expenses ( 890,743)

Net income, before income tax $ 666,493

Royal West Airlines is a regional airline that services Western Canada.

Notes:

a) $10,000 in legal fees relating to the restructuring of a debt.

b) A brand new airplane costing $65,000 used to service a new route

c) Interest on late municipal tax balances of $1,000

d) Sponsorship of a local musical production costing $9,240

e) Convention that was held in Barcelona, Spain costing $3,300

f) Interest expense of $4,000 that was associated with the acquisition of a GIC

g) Cost of sponsoring local hockey teams $500

h) Food and entertainment for clients $60,000

i) Life insurance premiums on the life of the president (required by the bank) $2,000

Item 1. During the year the Company spent $6,500 for landscaping its head office grounds.

For accounting purposes this cost was deducted in the year

Item 2. The Other Expenses account included the following amounts:

Item 3. The Other Income and losses account included the following amount:

$32,000 spent on a staff Christmas party where all employees were invited to attend the event.

Item 6. All of Royal’s remaining capital assets are Class 1 which related to an office building that was purchased in 2019. The UCC at the beginning of 2020 was $625,100.

On July 1, the Company added an additional room for $20,000. No Class 1 assets were disposed of in the year.

Item 5. In 2020, the Company deducted $21,000 bad debt expense based on a review of specific accounts.

Item 4. For tax purposes, the machinery that was sold was a Class 10 asset. All assets in class were disposed of. The machinery was purchased for $15,000 and its UCC balance at the beginning of 2020 was $10,250. The asset was sold in 2020 for $14,600.

Required:
Complete the table below and show the adjustments that would be required in Royal West Airlines 2020 SCHEDULE 1 for each item listed in the question. For each item, show whether it adds to NITP by marking “+” in the appropriate column, a “-“ mark if it subtracts from NITP, and a “na” mark if it is not
applicable.

Description

Addition (+)

Subtraction (-)

(na)

$ amount

Citation

Net Income for accounting

$666,493 9(1)

Item 1.

Item 2. a)

b)

c)

d)

e)

f)

g)

h)

i)

Item 3.

Item 4.

Item 5.

Item 6.

Answer rating: 100% (QA)

SOLUTION PARTICULARS NA AMOUNT CITATION NET INCOME FOR ACCOUNTING NET INCOME BEFORE ADJUSTMENT 66649... View the full answer