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Volume 2 Page 43 Chapter 12 Supplementary Self Study (SSS) Problems SSS Problem Twelve - 1 Chapter 12 Supplementary Self Study (SSS) Problems The solutions to these Chapter 12 SSS Problems can be found following the SSS Problems for this Chapter SSS Problem Twelve - 1 (Corporate Taxable income) Fortan Ltd. has normally had a fiscal year that ended on April 30. However, for 2019 and subsequent taxation years, the Company has requested and received permission from the CRA to switch its year end to December 31. Its Income Statement, before consideration of income taxes, for the period May 1, 2019 to December 31, 2019 is as follows: $465,000 (267,000) $198,000 Sales (All Within Canada) Cost Of Sales Gross Margin Operating Expenses (Excluding Taxes): Wages And Salaries Office Rent Bad Debt Expense Promotion Expense Warranty Reserve Amortization Expense Charitable Donations Foreign Exchange Loss Reserve For Self-Insurance Interest Expense Other Operating Expenses Income Before Taxes ($73,600) (17,600) 1,800) 3,405) ( 4,440) ( 12,384) ( 2,160) ( 4,080) ( 2,322) ( 1,974) (14,400) ( 138,165) $ 59,835 Other Information: 1. As of May 1, 2019, the undepreciated capital cost of the Company's office furniture was $32,500. During the eight month period ending December 31, 2019, a new conference table and chairs were acquired at a cost of $2,000. There were no dispositions during this period. 2. On May 1, 2019, the Company has a non-capital loss carry forward of $10,800. of 9 R Q R A Wee 1. As of May 1, 2019, the undepreciated capital cost of the Company's office furniture was $32,500. During the eight month period ending December 31, 2019, a new conference table and chairs were acquired at a cost of $2,000. There were no dispositions during this period. 2. On May 1, 2019, the Company has a non-capital loss carry forward of $10,800. 3. The Interest Expense relates to a bank loan that was incurred to acquire shares of a Cana- dian corporation. This investee corporation did not declare any dividends during the year. 4. On September 1, 2019, Fortan Ltd. declared common stock dividends of $7,200. 5. The Foreign Exchange Loss resulted from the purchase of merchandise in Germany. 6. Other than setting up reserves for self-insurance, the Company makes no provision for insuring its fixed assets. 7. The Bad Debt Expense includes a loss of $1,000 resulting from the bankruptcy of a major customer. 8. On September 1, 2019, the Company purchased a delivery van for $18,000. All other vehicles used by the Company are leased. Canadian Tax Principles - Self Study And SSS Problems (2019/2020) Volume 2 Page 44 Chapter 12 Supplementary Self Study (SSS) Problems SSS Problem Twelve - 1 9. Promotion Expense includes a golf club membership fee of $1,080 and $1,505 in airfare and accommodation that was incurred by the sales manager in attending a sales conven tion in Denver. The golf club is used exclusively for entertaining clients. The remaining balance in the Promotion Expense account of $820 is the total reimbursement paid to the president of the Company for amounts spent on meals and refreshments while enter taining clients at the club. 10. This is the first year that the Company has established a warranty reserve. Required: Calculate the minimum Net Income For Tax Purposes and Taxable income for Fortan Ltd. for the taxation year ending December 31, 2019. 'O AL OOR DRAW