Jimmy's Painting

BUS 323 Fall 2023

Group Project Case

Jimmy's Painting is an owner-operator run sole proprietorship that operates in Galloway, BC. Jimmy Davis started the company in several years ago. The business originally did primarily household painting services. Jimmy discovered there was a shortage of DIY paint supplies in town and expanded to a small retail shop carrying paint and paint supplies.

Jimmy's Painting operates out of a small, rented warehouse in the industrial part of town. He sub-leases a small portion of his shop in the summer to a university student painting crew. Jimmy hopes to build his own shop in the future and purchased some land which he is holding until he can afford to build.

It is January 10^th. Jimmy's bookkeeper is moving out of town and you have been hired to finish off his year-end and to help with his personal tax return, as well as to take on the bookkeeping on an ongoing basis. His previous bookkeeper was keeping tracking his transactions in Excel and has shared with you the December 31^st financial statements. During the handover meeting the bookkeeper shared the following information:

1. During the year Jimmy sold an old truck for $10,000 + GST. He had originally purchased it for $17,500 and had been claiming CCA on it in class 10 for the past three years. The bookkeeper recorded the original purchase transaction, but has not yet recorded the sale transaction.

1. Jimmy made a large credit sale for painting supplies to an out of town painting store last year.The painting store never paid their invoice and they closed this year. The bookkeeper recorded the sale as bad debt expense and allowance for doubtful accounts. The bookkeeper wasn't sure how to deal with the GST collected on the sale ($200) and PST collected in sale ($280) which is still part of the accounts receivable balance.

1. Jimmy made quarterly personal income tax installments of $1,750 to the Canada Revenue Agency. Jimmy did not make any GST installments during the year.

During your initial meeting with Jimmy in February, he shared the following information:

Included in the salaries and benefits line is $100,000 of salary I paid to myself. From the salary I paid myself, I made $16,000 in RRSP contributions during last calendar year, which is the amount my investment planner told me I need to contribute each year to reach my retirement goals.

Thinking forward to the future, once I build my new show I anticipate my annual revenues to double, with my expenses to also proportionately increase.I'm starting to think I need some tax help. I have heard a lot about the tax benefits of setting up a corporation for my business, but I am not sure how that would change things for me. Since you are working on my personal tax return this year, could you also tell me how things would be different if I were to incorporate?How would I go about transferring an existing business into a corporation? Are there any additional factors or tax planning opportunities that I need to consider when I take money from the business if it was incorporated?Would you recommend that I incorporate my business?

I really relied on my old bookkeeper to take care of everything for me with my personal taxes as well. I've given you all the information I have. Can you make sense of it and explain anything you think I need to know.

Jimmy's Painting
Income Statement
(Unaudited)
January 1, 20xx to December 31, 20xx
			Notes
Operating revenue
Painting sales		272,423
Painting supplies		132,211
Painting supplies retail sales		56,936
Miscellaneous revenue		76
Commission revenue		186
Interest and dividend revenue		5,016
Rental income		1,590
Total revenue		468,438
Operating expenses
Salaries and benefits		155,717
Insurance		1,528
Miscellaneous expenses		914
Cost of goods sold		177,740
Bank service charges		6,607
Rent		24,000
Supplies		16,518
Telephone		944
Utilities		8,507
Office supplies		2,666
Bad debt expense		4,000	2
Travel		1,002
Meals and entertainment		532
Advertising		2,475
Amortization		25,566
Total operating expenses		428,716
Income taxes		7,000	3
Net income		32,722

Jimmy's Painting
Balance Sheet
(Unaudited)
As at December 31, 20xx
				Notes
Assets
Cash			18,183
Accounts Receivable		48,273
Allowance for Doubtful Accounts		-8,720
Net Accounts Receivable			39,553
Inventory			20,488
Prepaid expenses			1,739
Capital assets
Vehicle		113,846
Equipment		27,027
Computer Equipment		10,279
Land		150,000
Accumulated Amortization		-50,618
Total capital assets			250,534
Total Assets			330,497
Liabilities
Accounts payable
Trade accounts payable		27,402
Payroll source deductions payable		2,336
GST collected on sales		4,198
GST paid on purchases		-1,289
PST collected on sales		996
Total accounts payable			33,643
Visa payable			6,382
Line of Credit			124,938
Total Liabilities			164,963
Owner's Equity			165,534

A written memo in Word with all calculations in an appendix integrated into the memo. The report should be written as a business memo to Jimmy.