The following information has been provided on ABC, a Canadian controlled private corporation for the year ended
Question:
The following information has been provided on ABC, a Canadian controlled private corporation for the year ended December 31, 2020.
The following statement has been provided:
Sales | $895,000 |
Cost of sales | $450,000 |
General and administrative expenses | 225,000 |
Research and development expenditures | 75,000 |
Operating income | $145,000 |
Other income | 35,000 |
Net income before taxes | 180,000 |
Provision for income taxes – current and future | 40,000 |
Net income after taxes | $140,000 |
You have been provided some notes on the above information:
The information in the following notes has already been reflected in the above income statement.
Amortization expense recorded in the financial statements | $25,000 |
Landscaping costs re: factory premises | 1,500 |
Interest on bank loan obtained for the purpose of purchasing common shares in XYZ., a dividend-paying Canadian corporation | 6,700 |
Legal costs of arranging an agreement among shareholders | 2,200 |
Golf club membership fees | 1,800 |
Meals and entertainment for clients | 7,700 |
Management bonuses ($35,000 of the bonuses expensed in 2020, and shown as ‘‘Bonus Payable’’ on the Balance Sheet as at December 31, 2020 has not been paid at the time of filing the corporate tax return on June 30, 2021) | 55,000 |
Interest and penalties on income tax assessments, expensed for accounting purposes | 2,250 |
Dividends received | 5,500 |
Required:
You will need to calculate the income from business / property for tax purposes for 2020. Start with the net income after taxes figure of $140,000. Then make the necessary adjustments and make supporting notes (1, 2, 3, etc.) to explain why something should stay in the financial statements, or why it should be adjusted.
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver