The following information is taken from the financial statements and audit working papers of ABC Inc.for its fiscal year ended December 31, 2020. The company is involved in buying and reselling widgets.

ABC Inc.
Condensed Unaudited Income Statement

For the Year Ended December 31, 2020

Sales $16,050,000
Cost of goods sold (14,050,000)
Gross profit $2000
Selling expenses $975,000

General and administrative expenses 495,000 (1,470,000)

Net income from operations $530 000
Gain on sale of assets (Note 15) 44 000
Investment Income (Note 16) 50 000
Net income before taxes 624 000
Provision for income taxes — current $120,000

provisions for income taxes— future 110,000 (230,000)

Net income after tax $394 000

The following items were deducted in arriving at the above net income:

1. The company accrued $10,000 for a potential liability due to a lawsuit brought about by an ex- employee. The case might be settled in 2021.

2. The company expects new competitive products to affect their margins, so they decided to set up a reserve for a decline in the inventory value in the amount of $25,000. They have never set up this kind of reserve before.

3. Charitable donations were made in the amount of $9,000.

4. The sales manager incurred expenses related to meals and entertainment at a golf club in the amount of $2,300.

5. The salesman received a car allowance of 60c per km. He drove a total of $15,000 business km during the year 2020.

6. Management bonuses of $92,000 was expensed for the year ($25,000 was paid on December 31, 2020 and the balance was paid on July 1, 2021).

7. In order to raise money for expansion, the company mortgaged the real estate it used in the business. The bank charged $10,000 mortgage application fees. The mortgage has a 10-year term and a 30-year amortization period.

8. A number of years ago, the company issued a bond at a discount. They have been amortizing this discount at the rate of $7,000 per year ever since, including this year.

9. During the year, they borrowed to buy capital assets. The interest expense related to this was $8,000.

10.This company paid $900 interest on 2019 deficient income tax instalments.

11.A life insurance policy was taken out on the president's life as it could be a source of funding for the company in the event of his death. Life insurance premiums on this policy amounted to $2,200.

12. The company repainted the new office building and paid $20,000. They capitalized this amount as part of the building.

13. Amortization expense on the fixed assets was $66,000.
14. You have already calculated the tax effects of all depreciable assets and your results shows:

Total CCA for 2020 $72 000

Terminal loss on the disposition of assets $3000

Recapture on the disposition of assets $4000

15. Accounting gain on the disposition of assets was $44,000. The accounting calculation was based on:

Proceeds $100 000

Net Book value 56,000

Cost $ 70,000

16. Investment Income consists of:

Interest income charged to customers on late payments of accounts receivable $12 000

Foreign Interest income net of $2,000 foreign withholding taxes $8000

Eligible dividends received from non-connected corporations $30 000

Additional Information:

1. Using the formula described in ITR402, it has been determined that 12 % per cent of the Company’s taxable income was earned outside of Canada.

2. The Company has a net capital loss balance carried forward from 2010 of $10,000.

3. The General Rate Income Pool (GRIP) balance on December 31, 2019 was $150,000 and no dividends were designated or paid as eligible dividends for the December 31, 2019 taxation year.

4. The January 1, 2020 balance in the Eligible Refundable Dividend Tax on Hand (RDTOH) account was $52,000, whereas, the Non-Eligible Refundable Dividend Tax on Hand (RDTOH) account was Nil.

5. During the fiscal year ending December 31, 2020, the Company declared and paid dividends of $130,000, all of which were designated as being eligible dividends.

6. The Company had adjusted aggregate investment income of $40,000 in 2019. The Company had Taxable Capital Employed in Canada of $12,000,000 in 2019 and $15,000,000 in 2020.

in a concise point-form schedule format: 

 

Find the Company's minimum 2020 

A.  Net Income for Tax Purposes 

B.   Taxable Income 

C.   Federal taxes for the 2020 year-end. 

D.  Determine the Company's December 31, 2020 balances in the Eligible Refundable Dividend Tax on Hand (RDTOH) and Non-Eligible RDTOH accounts, if any.  

E.   Determine the Company's dividend tax refund for the 2020 year-end 

F.    Determine the December 31, 2020 GRIP balance 

Answer rating: 100% (QA)

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