AP $6-5($Sole Proprietorship$-$Reconciling Income Tax to Accounting$)$

Several years ago George Danton decided he could benefit from his love of flowers by opening a

flower shop. The shop uses a calendar$-$based fiscal period ending December $31.$ The business has

been a great success, both in terms of being profitable and in enhancing George's enjoyment of life.

As George is the sole proprietor of the business, he has had no need to report income to anyone

else. Given this, he has always tried his best to use income tax concepts and principles to calculate

his annual business income. Based on his understanding of these income tax principles, George

determine that his business income for the $2023$ fiscal period was $$613,300.$

George has decided to expand his business into a neighbouring town. To do this, he needs a

mortgage on the property that will be acquired for operations in the new location. To his dismay,

the lender is insisting on financial statements prepared in accordance with Accounting Standards

for Private Enterprises $($ASPE$).$

As he has no knowledge of ASPE, he has asked you to determine the amount of ASPE$-$based

income that Danton's Flowers has earned for the $2023$ fiscal period.

Other Information:

In the business income calculation based on income tax $($ITA $67\mathrm{.}1),$ George deducted $$8,450$ in

business meals and entertainment expenses.

Because his shop is near the U$.$S$.$ border, George spent $$7,420$ advertising on a U$.$S$.$ television station

and deducted the amount in full. The commercials were directed at Canadian resident viewers.

Because of a broken window during early December, live flowers costing $$6,320$ were destroyed.

In $2023,$ George paid a high$-$level Canada customs official bribes totalling $$19,460.$ In return,

he received priority clearance for all his imports, as well as clearance for live plant imports

that should have been restricted. Since this bribe is considered to be an illegal payment to a

government official, it is not deductible for income tax purposes.

In $2023,$ George made $$6,300$ in contributions to a local hospital that is a registered charity. He

claimed this amount as a business expense.

For income tax purposes, the method chosen to value ending inventory is FMV$,$ which is

$$86,300.$ The cost, determined on a FIFO basis, was $$73,150.$

George deducted $$51,400$ in CCA for the year. You have determined that amortization under

George deducted $$51,400$ in CCA for the year. You have determined that amortization under

ASPE would have been $$46,350.$

George spent $$6,070$ on uniforms for the local men's softball team, whose games are heavily

attended and supported by the community.

George owns a delivery vehicle that cost $$29,000.$ It is the only class $10$ property of the business and,

as of January $1,2023,$ the class had a UCC balance of $$8,455.$ During the year, the vehicle was sold for

$$4,300$ and replaced with a leased delivery vehicle. Under ASPE, its carrying value at the time of the

sale would have been $$14,500.$ The leasing expenses are fully deductible for income tax purposes.

In December $2023,$ George spent $$15,200$ on landscaping the grounds around his store. Given

the late date at which this work was done, no amortization would be required for accounting

purposes with respect to these costs for $2023.$ It is expected that these landscaping improve$-$

ments will last at least $10$ years.

During $2023,$ George sold class $8$ property for $$21,300.$ The capital cost of the property sold

was $$32,600.$ At the end of the year the UCC of class $8$ was positive and other properties

remained in the class. The accounting carrying value of the property that was sold was $$18,300.$

No income tax was deducted in calculating net income.

Required: Determine the $2023$ ASPE$-$based accounting income for Danton's Flowers. Do not

include in your calculations any income tax that George will have to pay on this income. If you

do not make an adjustment for any of the items included in other information, indicate why this

is the case.

General Comment This reverse reconciliation exercise requires using the opposite approach

applied in a typical reconciliation from accounting income to net income. For example, amortiza$-$

tion would be added and CCA deducted in a standard reconciliation. In this reverse approach,

however, amortization would be deducted and CCA added.

$($If possible, please complete the problem in a table.$)$