Question 1 ABC Limited, a Canadian Controlled private corporation…
QuestionQuestion 1 ABC Limited, a Canadian Controlled private corporation…Question 1 ABC Limited, a Canadian Controlled private corporation (CCPC) began its current business operations which is over 90% manufacturing and processing in September 2018. This is the third year of operations, but the first year to show an accounting profit. Previous years’ business losses for tax purposes were $500,000 in 2019 and $250,000 in 2020. A $20,000 capital loss on the sale of excess raw land was realized in 2020. None of these losses have been used to date. The accountant for ABC Limited has provided you with the following income statement and miscellaneous financial information for the year ended June 30, 2021. Sales 8,300,000 Cost of goods sold (Note 2) 6,800,000 Gross profit 1,500,000 General and administrative expenses 500,000 Amortization 80,000 Interest 190,000 770,000 730,000 Gain on disposal of fixed assets 116,000 Net income before income taxes 846,000 Income taxes 295,000 Net income 551,000 Notes: The company operates exclusively in Canada. The company spent $5,000 in September 2018 for legal fees to raise capital to start operations. The cost of goods sold includes a general reserve in inventory of $41,500, calculated as 5% of the closing inventory value, to account for an anticipated introduction of a new product by a competitor. The company did not record any inventory reserves in its year ended June 30, 2020 General and administrative expenses include: a) Political donations 500 b) Advertising in a European magazine distributed only in Europe 1,200 c) Accrued bonuses — fully paid September 28, 2021 44,000 d) Provision for low-price guarantee 5,600 The company made payments of $6,200 during the year to customers who found lower priced merchandise. e) Donation to the United Way, a registered charity 10,000 The gain on disposal of fixed assets consists of the accounting gain on the sale of one of the corporation’s warehouses and its related land. For many years, the warehouse was the corporation’s only asset. The sale took place on October 30, 2020. The building was the last Class 3 asset held by the corporation. The total proceeds of disposition on the land and building was $200,000, of which 80% was allocated to the land. The land and building were purchased at a total cost of $120,000, of which 60% was allocated to the land at the time. Purchases made during 2021 were as follows: a) A new warehouse was purchased in February 2021 for $240,000. The cost of the land was $70,000 and the balance was allocated to the building; b) The company replaced its only photocopier with two new models, one that included a facsimile machine. The new photocopier machines cost $24,000 and $18,000 respectively. The old photocopier was sold for proceeds of $3,500. c) Improvements on its leased administrative offices were made at a cost of $224,000 in February 2021. The premises were rented in February 2019 for 4 years with two successive options to renew for 5 years each. In February 2019, improvements were made in the amount of $360,000;d) New manufacturing machinery was purchased in February 2021 for $250,000 to replace old Class 43 machinery that was sold on e-Bay for $20,000, purchased in January 2015 for $100,000; e) A 20-year license to use a manufacturing process was purchased on January 1, 2021 for $160,000; and f) A company car to be available for transporting out-of-town clients was purchased for $60,000 before 13% HST. This car replaced the only other existing company vehicle, a truck, which was purchased in fiscal 2019 for $44,000. The truck was sold for $22,000. The undepreciated capital cost balances at July 1, 2020 were as follows: Class 1 $1,600,000 Class 3 26,600 Class 8 (photocopier) 11,750 Class 10 26,180 Class 13 300,000 Class 43 313,750 Required: Part A Calculate the corporation’s minimum income from business or property for the year ended June 30, 2021 under the provisions of Division B of the Act. Support your answer with calculations. Use the template provided. You may modify as needed. There is a schedule for the calculation of CCA. All additions have been allocated to the proper classes. Rates for each class are provided. You need to add the disposals to the schedule, and calculate the CCA, and UCC closing balance. There is a separate tab for the Class 13 calculations. Part B Provide a brief explanation for any items omitted from the above reconciliation. Part C Calculate the corporation’s minimum taxable income for the year ended June 30, 2021. Support your answer with calculations. LawSocial ScienceTax lawShare Question
