Green Thumb Ltd. (GT Ltd.) is a Canadian-controlled private corporation operating a franchise gardening and plant nursery retail store in Kamloops, BC. Bob Green, is the company's sole shareholder and works at the store on a full-time basis. GT Ltd. has been in operations for the last 3 years and has continually been growing and prospering. For the taxation year ending December 31, 2020, the company has reported a net income for accounting purposes of $255,820 (see statement of income provided in appendix). You have been hired by the company to assist in the preparation of its 2020 tax return. Financial information relating to the 2020 taxation year is summarized below. 1. The amortization expense on all of the company's capital asset was properly calculated by the company's bookkeeper. Last years closing UCC balances for GT Ltd. were as follows: Class 1 (4%) Class 8 (20%) Class 14 (SL) Class 14.1 (5%) Class 50 (55%) $774,000 430,000 61,333 5775 8,400 During the year, GT Ltd. purchased a Class I building and land for a total purchase price of $580.000. At the time of the purchase, the land was valued at $370,000. The store has done so well in the last three years that Bob Green is running out of space, He intends to use the building to store inventory and bedding plants. Before the building could be used, major improvements totalling $180.000 had to me made to the structure. Landscaping improvements in the amount of $40,000 was also paid for at the time of the purchase. The bookkeeper feels that the landscaping is of a permanent nature and therefore will not be amortizing this item but rather has set it up in the books as a long term asset. In 2020, a class 8 equipment was sold for proceeds of S122,000. The item had originally been purchased for $96.000 and had a net book value for accounting purposes of $45.000. A replacement unit was purchased soon after for S156,000. Class 14 represents the franchise rights that were purchased when Bob started his Class 14 represents the franchise rights that were purchased when Bob started his business. Bob paid $80,000 for this 15-year franchise. When GT Ltd. was incorporated three years ago, lawyer fees of $10,000 were paid. of this balance, $3,000 were expensed immediately and the remaining balance was placed in class 14.1. Bob wants to expand his on-line sales to the US market and has purchased in 2020, a client list for $4,000 from a data collection firm operating in the United States. The client list is also to be added to class 14.1. Three computers in class 50 were sold this year for S1000 each. These computers had been purchased 3 years ago for $2,300 each. For accounting purposes, these computers had a book value of $1.500 per computer. A more powerful laptop computer was purchased this year for $2.000 to replace the three computers that were sold. Mr. Green enjoys fast cars and for the last 2 years. GT Ltd. has been leasing a Porsche 550 Spyder at a monthly rate of $2,300. The lease expired on August 307 of this year and rather than renewing lease. GT Ltd, purchased a BMW Class 10.1.309) Gran Coupe worth $235.000. GT Ltd, financed the purchase with loan that charges 5.8 annual interest. The interest paid for the period September 1 to December 31, 2020 amounted to $4.500 and was included in the interest and fees" account by the bookkeeper 2 Sataries oud wages expenses included an out of 516,000 paid to his 17-year- 2. Salaries and wages expenses included an amount of $16,000 paid to his 17-year- old daughter. She only worked for a month this summer, but Mr. Green essentially paid her four times the wage rate paid to other employees. He wants her to have enough money saved up for University next year and is happy to help her out. Also included in salaries and wages is an $80,000 bonus that was accrued for Mr. Green. Half of the bonus will be paid in January of 2021 and the other half in December of 2021. 3. One of the employees that works for GT Inc. is often required to make special deliveries to clients for rush orders. Although the employee must use his own vehicle, he is generously paid $0.78 per kilometer driven. During the year, the employee drove a total of 3,300 kilometers while delivering products. The allowance paid to the employee was recorded in the other operating expenses account. 4. Bob Green sometimes works from home on the weekends. During this time he often plans for the upcoming week, prepares monthly work schedules for employees, and attends to other business-related matters. The home office occupies 20% of the total floor space of his house. The following annual house costs were paid for during the year by Mr. Green: I Property taxes II. Mortgage interest III House insurance IV. Utilities V. Repairs and maintenance $4,000 10,000 1.000 5.000 2.000 Because these costs were paid directly by Mr. Green, none of these amounts were recorded in GT Ltd's statement of income. During the week. Bob uses his oftice located in the back of the store. Paragraphy Arrange 5. Since the Kamloops Lawn Bowling Club has been such a good customer ever since Mr. Green started his gardening store, he has become a full-time member of the club. Although the club fees are significant, $2,300 per year, he feels that it is well worth it. He can often attract new customers and boost his sales by bowling with gardening enthusiasts and mingling with the ground keepers who are always on the look out for new lawn and flower varieties for their club grounds. These fees were expensed as other operating expenses. 6. Legal fees include $2,300 paid to a lawyer defending GT against a lawsuit initiated by a client who claims they were seriously injured while pruning a tree with a pair of defective pruning sheers purchased at the store. Because the lawyer feels that the client has a good chance of winning the claim, GT has expensed an amount of $20,000 as a contingent reserve for a possible future payout settlement. 7. The insurance expense account includes premiums of $2.400 paid for a life insurance policy on the life of Mr. Green The policy is for coverage of $500,000 which was required by the bank as security for a business loan. The insurance account also includes premium of $4.000 for another life insurance policy in which his wife is named as the beneficiary, 8. Included in the interest and fees account is interest expense of S1.100 paid on a bank loan that was obtained in order to make an interest-free loan to one of the company's employees who was experiencing some financial difficultie OT Ltd, also had to pay $1,700 in financing fees for preparing and registering the mortgage talen out to finance the purchase of the new building 9. Accounting been included 51.800 paid to a local accounting firm for audit and tax services as well as a $320 penalty for filme to prepare the 2019 tax return ou time 10. Advertising and promotion includes an amount of 54.300 paid for the design and printing of the 2021 seed catalogue which will be sent out to clients in the early spray of 2021. The account also includes $7.000 paid for advertising atated on American television dening how to OT Id products to the Notte US state 11. The donations account is for amounts that GT Ltd. has given to three registered charitable organizations: Green Peace, Save the Planet, and the Plant a Tree Foundation. Mr. Green feels that these organization share the same ideology and values as he does. He also thinks that the medin exposure that he receives from making these generous gifts is good for getting the company's name into the public eye. 12. Mr. Green has gone to three gardening conventions during the year 1 12 Meals and entertainment Travel Hotel Convention for Total 5500 1.800 1.400 S650 1.200 1,500 500 S350 5.500 1.600 1750 59 20 1.300 Since coweto was beld in On Mr Green's wife is only in there she decided to accompany her and so that he could be funily Half of the travel controlled for computions for Mr. Grete Because 12. Mr Green has gone to three gardening conventions during the year. Costs 1 #2 1 Meals and entertainment 5500 $650 5580 Travel 1.800 2.200 5,800 Hotel 1.400 1.500 1.600 Convention for 500 500 1.250 Total $4,300 $5,150 $9 230 Since convention was held in Ottawa and Mr. Green's wife is originally from there, the decided to accompany her husband so that she could visit her family. Half of the travel costs recorded for conventios 3 was for Mrs. Green's afare. Because she was living with her family while Me Green was attending the convention, all other costs relate to Ms. Green. All convention costs were recorded by the bookkeeper in the travel account 13. An analysis of the allowance for dowbal accounts by the bookkeeper indicated that a bad debt expense of $15.000 should be recorded for accounting purposes in 2020. Last year. GT Lid claimed a bad debt reserve of $20,000. This year, the company has determined that we off of $22,000 is required for bad debts and a reserve of $13.000 sold be closed 14. The closing inventory a valued by the bookkeeper at the lower of cost and market. The cost determined in the weighted method while the desemned wg the treable method. Be the bookeeper felt that some of this getting old and that it might have to best fecurity dood value of the estar tory by a 515,000 for colle 15 Tu policy of SOOL that the 534 sportsmandes w Reuired: e DELL 2 F4 Ad F5 F6 F7 F8 F9 F10 F11 F12 Petser Insert Delete # A * $ 4 * % 5 & 7 6 ( 9 ) 0 Backspace 00 8 Required: Calculate GT Ltd.'s net business income for tax purposes for the year ended December 31, 2020. Include any taxabe capital gain or allowable capital losses in your reconciliation. When calculating the maximum CCA that the company can claim, also show the ending UCC balances for the year. Green Thumb Ltd. Statement of Income Year ended December 31, 2020 $2,850,000 $750,000 1.650.000 2,400.000 600.000 1.800.000 1.050.000 Sale revenues Cost of goods sold: Inventory, beginning of year Goods purchased during the year Goods available for sale Deduct inventory, end of year Cost of goods sold Gross Profit Expenses Amortization Accounting Legal Interest and fees Insurance Automobile leasing Travel Advertising and promotion Salaries and wages Employee benefits Dotation W Bad debt expense otir Operisting expert Total Expenses 120.000 30,000 36.000 15.000 21.000 18.400 18.880 135,000 300.000 66,000 15.000 2500 15.000 18 Olle sain and loose Golf 17.000 I Amortization Accounting Legal Interest and fees Insurance Automobile leasing Travel Advertising and promotion Salaries and wages Employee benefits Donations Warranty Bad debt expense Other Operating expenses Total Expenses Operating Income Other gains and losses: Gain on sale of equipment Loss on sale of computers Income before income taxes Income tax expenses Net Income 120,000 30,000 36,000 15,000 21,000 18,400 18.880 135,000 300,000 66,000 15,000 28.500 15,000 16.000 834,780 215.220 77.000 1.500 290,720 34.900 S25552 Green Thumb Ltd. (GT Ltd.) is a Canadian-controlled private corporation operating a franchise gardening and plant nursery retail store in Kamloops, BC. Bob Green, is the company's sole shareholder and works at the store on a full-time basis. GT Ltd. has been in operations for the last 3 years and has continually been growing and prospering. For the taxation year ending December 31, 2020, the company has reported a net income for accounting purposes of $255,820 (see statement of income provided in appendix). You have been hired by the company to assist in the preparation of its 2020 tax return. Financial information relating to the 2020 taxation year is summarized below. 1. The amortization expense on all of the company's capital asset was properly calculated by the company's bookkeeper. Last years closing UCC balances for GT Ltd. were as follows: Class 1 (4%) Class 8 (20%) Class 14 (SL) Class 14.1 (5%) Class 50 (55%) $774,000 430,000 61,333 5775 8,400 During the year, GT Ltd. purchased a Class I building and land for a total purchase price of $580.000. At the time of the purchase, the land was valued at $370,000. The store has done so well in the last three years that Bob Green is running out of space, He intends to use the building to store inventory and bedding plants. Before the building could be used, major improvements totalling $180.000 had to me made to the structure. Landscaping improvements in the amount of $40,000 was also paid for at the time of the purchase. The bookkeeper feels that the landscaping is of a permanent nature and therefore will not be amortizing this item but rather has set it up in the books as a long term asset. In 2020, a class 8 equipment was sold for proceeds of S122,000. The item had originally been purchased for $96.000 and had a net book value for accounting purposes of $45.000. A replacement unit was purchased soon after for S156,000. Class 14 represents the franchise rights that were purchased when Bob started his Class 14 represents the franchise rights that were purchased when Bob started his business. Bob paid $80,000 for this 15-year franchise. When GT Ltd. was incorporated three years ago, lawyer fees of $10,000 were paid. of this balance, $3,000 were expensed immediately and the remaining balance was placed in class 14.1. Bob wants to expand his on-line sales to the US market and has purchased in 2020, a client list for $4,000 from a data collection firm operating in the United States. The client list is also to be added to class 14.1. Three computers in class 50 were sold this year for S1000 each. These computers had been purchased 3 years ago for $2,300 each. For accounting purposes, these computers had a book value of $1.500 per computer. A more powerful laptop computer was purchased this year for $2.000 to replace the three computers that were sold. Mr. Green enjoys fast cars and for the last 2 years. GT Ltd. has been leasing a Porsche 550 Spyder at a monthly rate of $2,300. The lease expired on August 307 of this year and rather than renewing lease. GT Ltd, purchased a BMW Class 10.1.309) Gran Coupe worth $235.000. GT Ltd, financed the purchase with loan that charges 5.8 annual interest. The interest paid for the period September 1 to December 31, 2020 amounted to $4.500 and was included in the interest and fees" account by the bookkeeper 2 Sataries oud wages expenses included an out of 516,000 paid to his 17-year- 2. Salaries and wages expenses included an amount of $16,000 paid to his 17-year- old daughter. She only worked for a month this summer, but Mr. Green essentially paid her four times the wage rate paid to other employees. He wants her to have enough money saved up for University next year and is happy to help her out. Also included in salaries and wages is an $80,000 bonus that was accrued for Mr. Green. Half of the bonus will be paid in January of 2021 and the other half in December of 2021. 3. One of the employees that works for GT Inc. is often required to make special deliveries to clients for rush orders. Although the employee must use his own vehicle, he is generously paid $0.78 per kilometer driven. During the year, the employee drove a total of 3,300 kilometers while delivering products. The allowance paid to the employee was recorded in the other operating expenses account. 4. Bob Green sometimes works from home on the weekends. During this time he often plans for the upcoming week, prepares monthly work schedules for employees, and attends to other business-related matters. The home office occupies 20% of the total floor space of his house. The following annual house costs were paid for during the year by Mr. Green: I Property taxes II. Mortgage interest III House insurance IV. Utilities V. Repairs and maintenance $4,000 10,000 1.000 5.000 2.000 Because these costs were paid directly by Mr. Green, none of these amounts were recorded in GT Ltd's statement of income. During the week. Bob uses his oftice located in the back of the store. Paragraphy Arrange 5. Since the Kamloops Lawn Bowling Club has been such a good customer ever since Mr. Green started his gardening store, he has become a full-time member of the club. Although the club fees are significant, $2,300 per year, he feels that it is well worth it. He can often attract new customers and boost his sales by bowling with gardening enthusiasts and mingling with the ground keepers who are always on the look out for new lawn and flower varieties for their club grounds. These fees were expensed as other operating expenses. 6. Legal fees include $2,300 paid to a lawyer defending GT against a lawsuit initiated by a client who claims they were seriously injured while pruning a tree with a pair of defective pruning sheers purchased at the store. Because the lawyer feels that the client has a good chance of winning the claim, GT has expensed an amount of $20,000 as a contingent reserve for a possible future payout settlement. 7. The insurance expense account includes premiums of $2.400 paid for a life insurance policy on the life of Mr. Green The policy is for coverage of $500,000 which was required by the bank as security for a business loan. The insurance account also includes premium of $4.000 for another life insurance policy in which his wife is named as the beneficiary, 8. Included in the interest and fees account is interest expense of S1.100 paid on a bank loan that was obtained in order to make an interest-free loan to one of the company's employees who was experiencing some financial difficultie OT Ltd, also had to pay $1,700 in financing fees for preparing and registering the mortgage talen out to finance the purchase of the new building 9. Accounting been included 51.800 paid to a local accounting firm for audit and tax services as well as a $320 penalty for filme to prepare the 2019 tax return ou time 10. Advertising and promotion includes an amount of 54.300 paid for the design and printing of the 2021 seed catalogue which will be sent out to clients in the early spray of 2021. The account also includes $7.000 paid for advertising atated on American television dening how to OT Id products to the Notte US state 11. The donations account is for amounts that GT Ltd. has given to three registered charitable organizations: Green Peace, Save the Planet, and the Plant a Tree Foundation. Mr. Green feels that these organization share the same ideology and values as he does. He also thinks that the medin exposure that he receives from making these generous gifts is good for getting the company's name into the public eye. 12. Mr. Green has gone to three gardening conventions during the year 1 12 Meals and entertainment Travel Hotel Convention for Total 5500 1.800 1.400 S650 1.200 1,500 500 S350 5.500 1.600 1750 59 20 1.300 Since coweto was beld in On Mr Green's wife is only in there she decided to accompany her and so that he could be funily Half of the travel controlled for computions for Mr. Grete Because 12. Mr Green has gone to three gardening conventions during the year. Costs 1 #2 1 Meals and entertainment 5500 $650 5580 Travel 1.800 2.200 5,800 Hotel 1.400 1.500 1.600 Convention for 500 500 1.250 Total $4,300 $5,150 $9 230 Since convention was held in Ottawa and Mr. Green's wife is originally from there, the decided to accompany her husband so that she could visit her family. Half of the travel costs recorded for conventios 3 was for Mrs. Green's afare. Because she was living with her family while Me Green was attending the convention, all other costs relate to Ms. Green. All convention costs were recorded by the bookkeeper in the travel account 13. An analysis of the allowance for dowbal accounts by the bookkeeper indicated that a bad debt expense of $15.000 should be recorded for accounting purposes in 2020. Last year. GT Lid claimed a bad debt reserve of $20,000. This year, the company has determined that we off of $22,000 is required for bad debts and a reserve of $13.000 sold be closed 14. The closing inventory a valued by the bookkeeper at the lower of cost and market. The cost determined in the weighted method while the desemned wg the treable method. Be the bookeeper felt that some of this getting old and that it might have to best fecurity dood value of the estar tory by a 515,000 for colle 15 Tu policy of SOOL that the 534 sportsmandes w Reuired: e DELL 2 F4 Ad F5 F6 F7 F8 F9 F10 F11 F12 Petser Insert Delete # A * $ 4 * % 5 & 7 6 ( 9 ) 0 Backspace 00 8 Required: Calculate GT Ltd.'s net business income for tax purposes for the year ended December 31, 2020. Include any taxabe capital gain or allowable capital losses in your reconciliation. When calculating the maximum CCA that the company can claim, also show the ending UCC balances for the year. Green Thumb Ltd. Statement of Income Year ended December 31, 2020 $2,850,000 $750,000 1.650.000 2,400.000 600.000 1.800.000 1.050.000 Sale revenues Cost of goods sold: Inventory, beginning of year Goods purchased during the year Goods available for sale Deduct inventory, end of year Cost of goods sold Gross Profit Expenses Amortization Accounting Legal Interest and fees Insurance Automobile leasing Travel Advertising and promotion Salaries and wages Employee benefits Dotation W Bad debt expense otir Operisting expert Total Expenses 120.000 30,000 36.000 15.000 21.000 18.400 18.880 135,000 300.000 66,000 15.000 2500 15.000 18 Olle sain and loose Golf 17.000 I Amortization Accounting Legal Interest and fees Insurance Automobile leasing Travel Advertising and promotion Salaries and wages Employee benefits Donations Warranty Bad debt expense Other Operating expenses Total Expenses Operating Income Other gains and losses: Gain on sale of equipment Loss on sale of computers Income before income taxes Income tax expenses Net Income 120,000 30,000 36,000 15,000 21,000 18,400 18.880 135,000 300,000 66,000 15,000 28.500 15,000 16.000 834,780 215.220 77.000 1.500 290,720 34.900 S25552