6 Complete the template on the second tab (called "answer") and the third tab (called "CCA") to calculate 7 net income for tax purposes for Wally's World Inc. ("WW") based on the information provided below. 8 9 Wally's World Inc. ("WW") is a Canadian Controlled Private Corporation (CCPC) located in Edmonton, 10 Alberta that has been in operation since 2005. WW is a retail company that principally sells household 11 products. Mr. Wallace Stonson owns 100% of the common shares of the corporation. 12 13 14 Exhibit 1: Income Statement 15 16 17 6789 19 18 Wally's World Inc. Income Statement December 31, 2022 20 Sales 21 22 Cost of Sales: 23 Opening Inventory 24 Purchases 25 Closing Inventory 26 Cost of Goods Sold 27 Gross Profit 28 29 Expenses 30 Salaries and Wages (Note 7) 31 Meals and Entertainment 32 Insurance (Note 1) 33 Advertising and Promotion (Note 2) 34 Donations (Note 3) Mombambine Question Answer CCA $ SS $ SSSsss 34 Donations (Note 3) 35 Memberships (Note 4) 36 Bank charges and interest (Note 5) 37 Renovation expense (Note 8) 38 Amortization (Note 6) 39 40 41 Income before Other Income Other Income: 42 43 Gain on sale (Note 8) SA $ $ $ 44 Dividend income (received from Taxable Canadian corporations) 45 Interest income (Canadian source) 46 47 Income before Income Tax 48 49 Provision for income tax (Note 9) 55 51 Net income for the year 52 53 Exhibit 2: Notes & Financial Information 54 55 1. Insurance includes business insurance premiums of $ $ $ and the remainder of the 56 expense consists of life insurance premiums. The life insurance is not required as collateral for the 57 bank loan. 58 59 2. Advertising and Promotion includes: 60 61 62 63 A D Question Season tickets for Oilers Hockey Club (used to entertain clients on a regular basis) Advertising in The Globe and Mail (this paper is only distributed in Canada) Answer CCA 66 3. Donations were made to the following recipients on July 1, 2022: 67 68 69 70 SPCA Edmonton (registered charity) Federal Liberal Political Party S S 71 4. Membership dues are paid to the Petroleum Golf and Country Club. Mr. Stonson, owner and 72 director of the corporation, regularly takes customers to this golf club. 73 74 5. Included in the interest and bank charges account is $ 75 on the late payment of the company's 2021 corporate income taxes owing. 76 of interest and penalties paid 77 6. Amortization is calculated on a straight-line basis for accounting purposes. On September 15, 2022, 78 new office furniture was purchased for and on the same day, old office furniture . This fumiture was originally purchased for 79 was sold for proceeds of S 80 As the net book value of the fumiture was equal to the sale proceeds, there was no gain or loss recorded 81 for this sale for accounting purposes. 82 83 Information from the 2021 (prior year) T2 return: 84 85 86 87 88 89 UCC Class 1 closing balance (Note: this class consists of one commerical office building) UCC Class 8 closing balance UCC Class 14.1 closing balance $ (Note: no additions or dispositions from Class 14.1) 90 7. Salaries and Wages includes the following: 91 92 93 Bonus eamed by the President (this bonus was paid on September 15, 2023) Contributions to registered pension plan for all employees 94 Reasonable salaries to arm's length employees 91 Bonus eamed by the President 92 (this bonus was paid on September 15, 2023) 93 94 Reasonable salaries to arm's length employees 95 96 97 Contributions to registered pension plan for all employees Travel costs for Vice President to attend sales convention in Toronto 69 SSSS $ 98 8. The gain relates to the sale of the building (and land), which was sold on July 1, 2022. The building was 99 the last asset in its class. The details of the sale are as follows: 100 101 102 103 Sale proceeds (FMV of land and building) $ Original cost of the building $ Fair market value of the land $ Adjusted cost base for the land 104 The corporation sold the building where the retail store and office were located because the business 105 moved into a leased space. During the current year, a 6-year lease was signed for the new retail and office 106 space. Renovations were made to the leased space prior to moving into the new premises (see Income 107 Statement above for renovation cost).The leasehold improvements qualify for depreciation (CCA). 108 109 9. The provision for income tax is an estimate of the taxes to be paid for the current year. 110 111 Other Information: The corporation has a net capital loss carvover available of 1 T2: Corporate Tax Return 2 Calculation of Net Business Income for Income Tax Purposes 3 4 Net Income for Accounting Purposes Winter 2022 5 6 Add: 7 ITA Reference 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Deduct: 28 ITA Reference 29 30 31 Description: Description: + 27 Deduct: 28 ITA Reference; 29 30 31 32 33 34 35 36 37 38 39 www Description: 41 Net Business Income for Tax Purposes 42 43 Net Income for Tax Purposes 44 45 +3(a) Positive Sources of Income 46 Net Business income 47 ITA Reference; 481 49 50 51 52 53 54 55 56 57 +3(b) Net Taxable Capital Gains Question $ Description: Answer CCA + 57 +3(b) Net Taxable Capital Gains 58 ITA Reference: 59 60 61 62 63 64 65 Description: 66 67 68 -3(c) Other Deductions - not applicable 69 -3(d) Losses-none 79 71 Net Income for tax Purposes: 72 Less: Division "C" Deductions: 73 ITA Reference: 74 Description: 75 76 77 78 79 Taxable Income: an + S . 0 1 2 3 A B UCC balance at the CCA Class beginning of No. year D E F G H Additions. Dispositions Balance Other Work/Calculations: Balance 1/2 Amount Subject to (Acell) CCA J Maximum UCC at the CCA Rate CCA Deduction end of the year 3. Read the question details on the "Question" tab. Use the information on this tab to prepare a calculation of net income for tax purposes for the corporation indicated in the question. NOTE: the excel spreadsheet is protected, meaning you can only enter information into the blue shaded cells, all other cells are locked for editing purposes. You can create formulas in the blue shaded cells that reference locked cells. 4. Go to the second tab of the spreadsheet called "Answer" and first calculate net business income for tax purposes using the reconciliation method by entering the appropriate adjustments/figures in the blue cells. For each adjustment, be sure to include the correct ITA reference in column A and an appropriate description on the blue lines in columns B and C. As always, for full marks, it is important to show all of your work. Next to the description line, enter the dollar amount of the adjustment (using a formula, where applicable) on the blue lines in column E. Enter all adjustments as positive figures as the formula for Net Business Income for Tax Purposes at the bottom of the reconciliation appropriately subtracts all of the deduction line items. You can use formulas in the cells in Column E or you can link the Column E cells to figures provided on the "Question" tab or the "CCA" tab. 5. After calculating net business income for tax purposes, then complete the calculation of net income for tax purposes by completing the 3(a) and 3(b) sections of the net income calculation included on the "Answer" tab of the excel spreadsheet. Enter detailed descriptions in the blue shaded cells in columns A, B and C. Next to the description line, enter the dollar amount of the income or gain amount (using a formula, where applicable) on the blue lines in column E. You can use formulas in the cells in Column E or you can link the Column E cells to figures provided on the "Question" or from the "CCA" tab. 6. Use the third tab, called "CCA" to complete the necessary CCA calculations. Again, you can. only enter information into the blue shaded cells. There is an open space on this tab to include any other explanations and show your work for additional calculations, as necessary. 7. After calculating net income for tax purposes, then complete the calculation of taxable income by entering the appropriate deductions in the "Division "C" Deduction" section included on the "Answer" tab of the excel spreadsheet. Enter detailed descriptions in the blue shaded cells in columns A, B and C. Next to the description line, enter the dollar amount of the deduction (as a negative number) on the blue lines in column E. You can use formulas in the cells in Column E or you can link the Column E cells to figures provided on the "Question" tab