102 Introduction to Federal Income Taxation in Canaa ITA: 9-12, 18-20, 37, 67. 78, 147 Problem 16 The unaudited income statement for Lomas & Sons Limited, a Canadian-controlled private corpo- ration, for its year ended December 31, 2021, shows the following: 5 Ernaldo Sales .......... Cost of sales ......... General and administrative expenses Research and development expenditures Operating income Other income Net income before taxes.. Provision for income taxes: current -future Net income after income taxes $ 795,000 $350,000 225,000 65,000 (640,000) $ 155,000 20,000 $ 175,000 ..... $ 27,000 25,000 (52,000) $ 123,000 The information in the following notes has already been reflected in the above income statement. . 2,200 (1) Payment made by company on April 1, 2022, to a defined contribution (money purchase) registered pension plan for the president of the company in respect of current employment service, allocated to 2021 expenses by the company's accountant; in addition, the president had $7,500 withheld from his compensation of $74,000 for the RPP.................. ... $7,000 (2) Increase in warranty reserve on company's product (net of expense incurred; based on self-insurance warranty program).... 16,000 oleh (3) Amortization expe expense recorded in the financial statements 30,000 (4) Landscaping costs re: factory premises. 2,500 * (5) Interest on bank loan obtained for the purpose of purchasing common shares in Advanco Ltd., a dividend-paying Canadian corporation ... 6,300 (6) Legal costs of arranging an agreement among shareholders 8,500 (7) Legal and accounting fees related to issue of shares 12,700 - (8) Interest on municipal real estate taxes paid late in error 1,000 (9) Golf club membership fees (10) Donation to United Way. 3,000 (11) Meals and entertainment for clients 4,000 to (12) Appraisal fees to determine selling price of fixed assets 6,200 (13) Premium on term insurance on life of president with the corporation as beneficiary, policy was not required to be assigned as collateral for corporate borrowing from the bank .................... 2,800 (14) Management bonuses ($20,000 of the bonuses expensed in 2021, and shown as "Bonus Payable" on the Balance Sheet as at December 31, 2021, has not paid at the time of filing the corporate tax return on June 30, 2022) 40,000 (15) Amortization of bond discount on bonds issued in 2016 3,400 (16) Interest and penalties on income tax assessments, expensed for account- ing purposes.......................... 1,250 (17) Items included in the financial accounting statements in arriving at the net profit: Amount paid by an insurance company on its business interruption insurance to compensate for loss of profits when company was closed down for a month during the year because of a fire 26,800 Dividends received ..... 1,700 Volume rebates and discounts on purchases 16,000 Your manager has asked you to compute the income from business or property for tax purposes, ignoring tax deductions in respect of depreciable capital or eligible capital property for Lomas and Sons Limited in respect of its 2021 fiscal year. In addition, she wants you to comment on all items not included in your derivation of income from business or property. been ... 14,850 102 Introduction to Federal Income Taxation in Canaa ITA: 9-12, 18-20, 37, 67. 78, 147 Problem 16 The unaudited income statement for Lomas & Sons Limited, a Canadian-controlled private corpo- ration, for its year ended December 31, 2021, shows the following: 5 Ernaldo Sales .......... Cost of sales ......... General and administrative expenses Research and development expenditures Operating income Other income Net income before taxes.. Provision for income taxes: current -future Net income after income taxes $ 795,000 $350,000 225,000 65,000 (640,000) $ 155,000 20,000 $ 175,000 ..... $ 27,000 25,000 (52,000) $ 123,000 The information in the following notes has already been reflected in the above income statement. . 2,200 (1) Payment made by company on April 1, 2022, to a defined contribution (money purchase) registered pension plan for the president of the company in respect of current employment service, allocated to 2021 expenses by the company's accountant; in addition, the president had $7,500 withheld from his compensation of $74,000 for the RPP.................. ... $7,000 (2) Increase in warranty reserve on company's product (net of expense incurred; based on self-insurance warranty program).... 16,000 oleh (3) Amortization expe expense recorded in the financial statements 30,000 (4) Landscaping costs re: factory premises. 2,500 * (5) Interest on bank loan obtained for the purpose of purchasing common shares in Advanco Ltd., a dividend-paying Canadian corporation ... 6,300 (6) Legal costs of arranging an agreement among shareholders 8,500 (7) Legal and accounting fees related to issue of shares 12,700 - (8) Interest on municipal real estate taxes paid late in error 1,000 (9) Golf club membership fees (10) Donation to United Way. 3,000 (11) Meals and entertainment for clients 4,000 to (12) Appraisal fees to determine selling price of fixed assets 6,200 (13) Premium on term insurance on life of president with the corporation as beneficiary, policy was not required to be assigned as collateral for corporate borrowing from the bank .................... 2,800 (14) Management bonuses ($20,000 of the bonuses expensed in 2021, and shown as "Bonus Payable" on the Balance Sheet as at December 31, 2021, has not paid at the time of filing the corporate tax return on June 30, 2022) 40,000 (15) Amortization of bond discount on bonds issued in 2016 3,400 (16) Interest and penalties on income tax assessments, expensed for account- ing purposes.......................... 1,250 (17) Items included in the financial accounting statements in arriving at the net profit: Amount paid by an insurance company on its business interruption insurance to compensate for loss of profits when company was closed down for a month during the year because of a fire 26,800 Dividends received ..... 1,700 Volume rebates and discounts on purchases 16,000 Your manager has asked you to compute the income from business or property for tax purposes, ignoring tax deductions in respect of depreciable capital or eligible capital property for Lomas and Sons Limited in respect of its 2021 fiscal year. In addition, she wants you to comment on all items not included in your derivation of income from business or property. been ... 14,850