RR Inc. operates an active business. Financial statements for the year ended December 31, 20X1 report a

Question:

RR Inc. operates an active business. Financial statements for the year ended December 31, 20X1 report a net income before taxes of $300,000. The following additional information is provided:

1. RR’s net income is summarized as follows:

2. During the year RR completed construction of a new warehouse building and its cost of $600,000 was added to the balance sheet. The cost consists of the following:

The balance sheet of RR includes an amount for goodwill acquired from a previous business acquisition. During the year a goodwill impairment loss of $30,000 was deduced from the income from business operations.

Legal expenses include $2,000 for drafting the mortgage document for the new warehouse, $1,000 to investigate a zoning limitation on the new warehouse site, and $5,000 for the audit fee.

3. The balance sheet of RR includes an amount for goodwill acquired from a previous business acquisition. During the year, a goodwill impairment loss of $30,000 was deducted from the income from business operations.

4. Legal expenses include $2,000 for drafting the mortgage document for the new warehouse, $1,000 to investigate a zoning limitation on the new warehouse site, and $5,000 for the audit fee.

5. A management bonus of $60,000 was announced and accrued in September 201X. The bonus was paid in two equal installments on January 31 and April 30 of the following year.

6. The income statement for the year ended December 31, 201X includes the following items:

7. Advertising and promotion includes $20,000 for airing a TV commercial, $30,000 for production of the TV commercial, $5,000 for club memberships in a sports-related facility to enhance business contacts and $12,000 for acquiring a permanent mailing list for seeking new customers.

8. Capital cost allowance and a cumulative eligible capital deduction for tax purposes has been correctly calculated as $58,000.

Required:

Determine RR’s net income from business for tax purposes for the 201X taxation year.

Goodwill
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