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NAME: HUMBER COLLEGE THE BUSINESS SCHOOL FIN 4500 GROUP ASSIGNMENT CLASS ACTIVITY CH 5 B GRADE VALUE: 2% MUST BE COMPLETED INDIVIDUALLY MUST BE COMPLETED IN TYPED FORMAT IN MSWORD DUE DATE :FEBRUARY 14, 2017 SUBMIT THE ASSIGNMENT IN BUSINESS OFFICE ROOM# H215 BY 4:00 PM Question 1: Use the tabular format provided in the class to complete this question: During 2012, Janice Teason has the following costs related to her principal residence: Utilities Maintenance And Repairs Telephone: Monthly Charge Personal Long Distance Charges Employment/Business Related Long Distance Charges Office Supplies Property Taxes House Insurance Interest On Mortgage $3,200 3,800 480 275 780 675 6,400 1,800 6,200 Ms. Teason estimates that she uses 30 percent of the residence for employment/business related purposes. Maximum CCA on 100 percent of the house would be $15,000. Determine the maximum deduction that would be available to Ms. Teason assuming: A. She is an employee with $80,000 in income (no commissions). B. She is an employee with $80,000 in commission income. C. She is self-employed and earns $80,000 in business income. Question 2: Use the tabular format provided in the class to complete this question: During 2012, Jonathan Beasley has the following costs related to his principal residence: Utilities Maintenance And Repairs Telephone: Monthly Charge Personal Long Distance Charges Separate Line To Home Office Employment/Business Related Long Distance Charges Office Supplies Property Taxes House Insurance Interest On Mortgage $2,500 3,100 240 85 480 560 425 5,400 1,300 4,600 Mr. Beasley estimates that he uses 18 percent of the residence for employment/business related purposes. Maximum CCA on 100 percent of the house would be $12,000. Determine the maximum deduction that would be available to Mr. Beasley assuming: A. He is an employee with $72,000 in income (no commissions). B. He is an employee with $72,000 in commission income. C. He is self-employed and earns $72,000 in business income. Question 3: Simone Cherniak has just completed the second year of operating her veterinary clinic. You have been retained by Cherniak for tax assistance and advice. At a recent meeting, you gathered information on her practice, which is presented below. For the year ended December 31, 2016, the clinic showed a profit of $123,700, as follows: Professional service Gross profit from surgical instrument sales Administration and other expenses Interest income Net income $321,000 28,000 349,000 228,300 120,700 3,000 $123,700 Included in the above is depreciation/amortization expense of $23,000 on fixed assets and amortization of development costs of $4,400. Additional information is outlined below. 1. On February 28, 2016, Cherniak purchased a competitor's business and merged it with her own. The following assets were acquired: Truck Equipment 2. $ 18,000 50,000 During the year, Cherniak designed and patented a new surgical instrument. On July 1, 2016, a legal fee of $4,000 was paid for the patent (life of 20 years) registration; this amount is included in administration expenses. In October, $16,000 was spent on consultants to research metal alloys, and this cost is being amortized as development costs in the financial statement. 3. Professional services revenue includes the value of unbilled services compiled from a work-in-progress file. At December 31, 2016, unbilled services amounted to $27,000, compared with $18,000 at the same time last year. In 2015, Cherniak had made an election under section 34 of the Income Tax Act to exclude work in progress from income. 4. Some of the items included under administrative and other expenses are as follows: Group life insurance for office staff Christmas gifts to staff (under $200 each) Dues to golf club (for employee) Meals and drinks for clients Books (15-volume set on veterinary medicine) Interest on car loan (six months) Finder's fee for a loan to finance equipment $1,100 1,400 1,200 400 3,000 2,100 1,000 5. The income statement includes a cost of $3,150 for attending three conventions during the year. Convention #1 ($750) was in July 2016. Conventions #2 ($1,350) and #3 ($1,050) were both in December 2016. Each convention includes a cost of $100 for meals. For each of the December conventions, the airfare of $200 was included in accounts payable at the end of the year. 6. Vehicle costs include operating costs of $2,400 for the automobile (including $400 for car parking). The automobile was driven 24,000 km. Of this, 12,000 km was for customer travel, 2,000 km was for travel between her home and the clinic, and 10,000 km was for personal travel. 7. Cherniak expects that a number of the new manufactured surgical instruments will be returned for modification, which she will do at no extra cost to the customer. The income statement includes a $2,000 deduction based on her estimate of the returns. As of December 31, 2016, $800 of costs were incurred for returned items. 8. Cherniak moved from rented premises to new rented premises on February 28, 2016, with 20 months remaining on the old lease. The landlord accepted a payment of $8,000 in exchange for cancelling the lease. The accounting records have amortized this cost over the remainder of the lease term and accordingly have deducted $4,000 ($8,000 x 10 m/20 m) as rent expense. 9. Capital cost allowance (CCA) for tax purposes has been correctly calculated as $15,000. Required: Determine Cherniak's income from business for tax purposes for the 2016 taxation year. Identify any other sources of income that are taxable in the year. GROUP NAMES: 1. 2. 3. HUMBER COLLEGE THE BUSINESS SCHOOL FIN 4500 GROUP ASSIGNMENT GRADE VALUE 3% DUE DATE: FEBRUARY 27, 2017 AT THE BEGINNING OF THE CLASS INSTRUCTIONS: This assignment must be done in groups only. No individual assignment will be accepted and marked. Group formation is entirely your responsibility. Groups must have minimum three members and maximum four members. No other group composition is acceptable. If you don't find a group, it's too bad. Last minute email from any student for not able to find a group will not be entertained. You have more than two weeks to join the group. The assignment must be typed in MS World. No hand-written assignment will be accepted. Question 1: At the end of 2015, Barton's Books has ending accounts receivable of $87,500. Of this amount, it is estimated that $3,400 would prove uncollectible. A reserve for tax purposes is deducted for this amount. During 2016, $3,600 of accounts receivable are written off. At the end of 2016, accounts receivable total $103,200, with $4,100 of this amount expected to be uncollectible. By what amount will the 2016 net business income of Barton's Books be increased or decreased by the preceding information with respect to bad debts? Question 2: During 2016, Leslie's Boutique wrote off $13,000 in accounts receivable as uncollectible. At the end of this year, the accounts receivable balance was $256,400. Based on past experience, it is expected that 4 percent of these accounts will prove uncollectible. In its 2015 tax return, Leslie's Boutique had deducted a reserve for bad debts of $12,300. By what amount will the 2016 net business income of Leslie's Boutique be increased or decreased by the preceding information with respect to bad debts? Question 3: Veronica Hart is employed in retail sales with a large department store. Because of the expertise in sports clothing that she has gained as an employee, she has decided to start a sports clothing mail order business in order to supplement her employment income. The business commences on January 20, 2016. On that date, she acquires office furniture and display racks at a total cost of $14,000, a computer for $1,350, and software appropriate to her business activities for $795. She also has a separate telephone line installed for dealing exclusively with the mail order business. The business will be run out of her home, making exclusive use of 15 percent of the total available floor space. The business will have a December 31 year end. During the period January 20, 2016 through December 31, 2016, her mail order sales total $89,000. Costs associated with these sales are as follows: Cost Of Merchandise Sold Unsold Merchandise (Lower Of Cost And Market) Packaging Materials Shipping Costs Miscellaneous Office Supplies Telephone Charges (Total For The Period) Printing Of Brochures Distributed $46,000 23,500 1,547 3,216 825 210 156 Her home was purchased several years ago for $355,000 of which $80,000 was allocated to the land. Costs accrued with respect to the home for the year ending December 31, 2016 are as follows: Utilities For Home (Heat, Light, And Water) Mortgage Interest Paid House Insurance Property Taxes Repairs And Maintenance For Home Total $2,850 4,183 400 1,230 1,125 $9,788 Required: You are not required to calculate CCA. Assume CCA cost for home office being $2,174 and CCA for nonoffice expenses $2,056 A. Can Ms. Hart deduct home office costs? Briefly explain your conclusion. B. Compute the minimum net business income or loss that Veronica must report in her 2016 personal income tax return. Ignore the fact that 2016 is a leap year. C. Briefly describe any issues that should be discussed with Veronica concerning her home office and business costs. Question 4: The condensed before tax Income Statement for Swindex Incorporated for the year ending December 31, 2016, prepared from information included in its financial statements, is as follows: Sales Cost Of Sales Gross Margin Other Expenses (Not Including Taxes) Operating Income Before Taxes Other Income And Losses Income Before Taxes $3,000,000 ( 1,570,000) $1,430,000 ( 755,000) $ 675,000 275,000 $ 950,000 Other Information: 1. During the year, the Company spent $5,200 for landscaping its head office grounds. For accounting purposes this was treated as a capital expenditure, but was not amortized during the current year. 2. The Other Expenses (Not Including Taxes) account included the following amounts: Bond discount amortization Interest on deficient corporate tax instalments Reserve for inventory declines Interest paid on bonds issued Amortization expense Cost of advertising in magazine distributed only in Jamaica Charitable donations Cost of sponsoring local hockey teams Cost of advertising circulars (One-half have been distributed) 3. The Other Income And Losses account contains the following items: Damages paid for breach of contract Loss from theft Cost of appraisal of property to be sold 4. $ 500 1,700 96,300 22,000 36,500 18,000 19,100 3,200 15,000 $18,000 2,800 3,800 Maximum CCA has been calculated to be $57,500 for the year ending December 31, 2016. The policy of the Company is to deduct maximum CCA in each taxation year. Required: Using the preceding information, calculate Swindex Incorporated's Net Income For Tax Purposes for the year ending December 31, 2016. In addition, provide explanation for any items that were excluded from your calculations