The following is a condensed income statement for IBM Inc., a Canadian-controlled private corporation with a December
Question:
The following is a condensed income statement for IBM Inc., a Canadian-controlled private corporation with a December 31, 2021, year end.
Notes: (1) The "Cost of goods sold" an inventory reserve of $75,000 to account for slow-moving inventory items. This reserve was computed based on late 2021 selling prices of the inventory items involved.
(2) The "General and administrative expenses" include the following:
a) premiums of $2,400 ($200 per month) paid toward a $500,000 term life insurance policy on the president; the company is the beneficiary of the policy; the life insurance policy is required as collateral for a bank loan that was obtained on September 1,2021; the premiums paid equal the net cost of pure insurance relating to this policy;
b) an allowance for doubtful accounts of $8,000 based on actual specific accounts they did not expect to collect
c) depreciation of $280,000;
d) Promotion expenses as follows:
i) Political donations which resulted in a significant government contract. $7,000
ii) Charitable donations which resulted in a significant contract from a member of the charity's board.. ................................................................ $ 5,000
iii) Cost of sponsoring a local hockey team.................................................. $4,200
iv) Meals with customers..................................................................... $6,000
v) Theatre tickets for suppliers……………………………………………………….. 2,800
vi)Year-end party for all staff……………………………………………………… 6,800
vii)Advertising in a Florida magazine aimed at Canadians vacationing there 5,500
viii) Membership in a golf club which the company used extensively in entertaining customers……………………………………………………… 4,700
(3) The "Other income (deductions)" account included the following deductions:
Cost of amending its articles of incorporation………………………………................................3,100
Costs incurred in connection with the issuance of shares………………............................. 6,500
Costs incurred in connection with the acquisition of shares of another company… 12,200
Costs incurred in connection with negotiations for a new bank loan…....................... 9,000
Interest paid to Revenue Canada on the late payment of tax instalments................... 1,650
Loss from theft by accounts receivable clerk…………………...............................................29,000
Damages paid to supplier for breach of contract…………………………….......................... 25,000
Cost of landscaping around the building…………………………… ………................................ 3,200
(4) The corporations' accountant has told you that IBM is entitled to a $380,000 capital cost allowance claim in 2021 and you have verified that this is correct.
(5) In December 2021, IBM announced an early retirement plan for employees aged 60 to 65. The deadline for acceptance for eligible employees is March 1, 2022. Management has estimated that early retirement payments of $80,000 are likely to be required under the plan and had deducted this amount in computing "Other income (deductions)". There is no legal obligation for this expense at December 31, 2021, since no employees have accepted the offer. Required:
(A) Compute net income for tax purposes for 2021. Show all calculations whether or not they seem relevant to the final answer.
(B) Comment on all items omitted from the calculation.
Expert Answer:
Net income for tax purposes for 2021 is as follows Hotel and airfare 19000 Out of town meals 6000 Entertainment meals 1500 Professional dues 750 Noteb... View the full answer
