Assignment Problem Twelve - 3

(Corporate Net And Taxable Income)

Vertin Ltd. is a Canadian public company that has always used a December 31 year end. However, as December is a very busy time for their business, it has requested a change in their taxation year end to July 31 as required by ITA 249.1(7), a date at which their business activity is at the low point for the year. The CRA has approved the request.

The change will be implemented beginning with the 2021 taxation year, resulting in a short fiscal period of January 1 to July 31, 2021. The companys Income Statement, prepared in accordance with generally accepted accounting principles (IFRS), for the period January 1, 2021, through July 31, 2021, is as follows:

Vertin Ltd.

Income Statement

Seven-Month Period Ending July 31, 2021

Sales (all within Canada) $1,796,600

Cost of Sales ( 973,400)

Gross Margin $ 823,200

Other Expenses (excluding taxes):

Wages And Salaries ($108,200)

Administration ( 194,200)

Amortization ( 97,600)

Rent ( 113,400)

Interest Expense ( 13,200)

Foreign Exchange Loss ( 7,600)

Travel And Promotion ( 86,300)

Bad Debt Expense ( 6,200)

Warranty Expense ( 7,400)

Charitable Donations ( 8,100)

Other Operating Expenses ( 51,200) ( 693,400)

Operating Income $ 129,800

Gain on sale of investments 7,800

Income before taxes $ 137,600

Other Information:

1. Wages and salaries includes a $28,000 bonus to Vertin Ltd.s CEO. Because she anticipates retiring at the end of 2021, this bonus will not be paid until January 2023.

2. In determining the Cost Of Sales, the company deducted a $23,400 reserve for inventory obsolescence.

3. The company bases its accounting bad debt expense on the amounts acceptable for income tax purposes. Amortization is on a Class 1 building, Class 8 furniture and fixtures, and Class 10 delivery vehicles. The following information is relevant for the determination of CCA for the seven-month period ending July 31, 2021:

Building The January 1, 2021, UCC for the building was $872,000. During 2021, the company spent $42,000 on improved flooring in all areas of the property. The building was not a new building when it was acquired.

Furniture And Fixtures The January 1, 2021, UCC balance for Class 8 was $285,000. During 2021, new furniture was acquired at a cost of $40,600. Old furniture with a capital cost of $28,200 was sold for $17,600.

Delivery Vehicles On January 1, 2021, the Class 10 UCC balance was $198,300. There were no additions or disposals in this Class during the seven-month period ending July 31, 2021.

4. The interest expense relates to a line of credit that was used to finance seasonal fluctuations in inventory.

5. The foreign exchange loss resulted from financing costs related to the purchase of merchandise in the United Kingdom.

6. The travel and promotion expense consisted of the following items:

Business meals and entertainment $32,400

Hotels and airfare 41,800

Golf club memberships 12,100

Total travel and promotion expense $86,300

7. For accounting purposes, the company establishes a warranty reserve based on estimated costs. On January 1, 2021, the reserve balance was $8,200. On July 31, 2021, a new reserve was established at $7,400.

8. The accounting gain on the sale of investments is equal to the capital gain for tax purposes.

9. During the period January 1, 2021, through July 31, 2021, the company declared and paid dividends of $31,400.

10. On January 1, 2021, the company has available a $24,600 non-capital loss balance from 2019 and a $7,200 net capital loss balance from 2018.

Required: Calculate the minimum Net Income For ITA Purposes and Taxable Income for Vertin Ltd. for the seven-month period ending July 31, 2021. Indicate the amount and type of any carry forwards that will be available for use in future years.

This is a Canadian Taxation course. However, this is the latest version of the textbook for 2021. Therefore, please do not re-post the answers from previous years because there has been a change in the data in the question. Thank you for your help!