KC Restaurants Ltd. was incorporated on July 1, 2019, and began operations immediately. By December 31, 2019 (the corporation’s first year end), three new restaurants had been opened, two of which were franchises. During the first few months of operations, the following expenditures were made by KCR

During the first few months of operations, the following expenditures were made by KCR:

Legal fees for the cost of incorporation	$   4,000
Cooking equipment including food processors	320,000
Franchise #1	40,000
Franchise #2	80,000
Cutlery, plates, glasses, and cups	115,000
Computer software for restaurant accounting	3,000
Building (constructed after March 18, 2007)	220,000

Franchise #1 was purchased on October 1, 2019, and will expire after 120 months. Franchise #2, which was acquired on July 1, 2019, has no expiry date and will continue indefinitely, provided that the terms of the franchise agreement are met. Other equipment, such as tables and chairs, was leased.

For the taxation year ending December 31, 2019, KCR claimed a deduction for the maximum available CCA.

On December 1, 2020, KCR sold the non-franchised restaurant. The sale price included these proceeds:

	Proceeds	Original cost
Goodwill	$ 60,000	–0–
Land	15,000	12,000
Building	230,000	220,000
Cooking equipment	40,000	72,000
Cutlery, plates, glasses	26,000	37,000

The Income Statement prepared for accounting purposes for the year ended December 31, 2020, with additional information, is provided below:

Sales		$1,845,000
Cost of sales		1,011,000
Gross profit		834,000
Rent, property taxes, and insurance	$ 72,000
Salaries and wages	275,000
General overhead	301,000
Advertising and other	96,000	744,000
		90,000
Gain on sale of goodwill		60,000
Net losses on sale of fixed assets		(22,000)
Net income		$ 128,000

1. Included in advertising expenses is $2,000 of donations made to a registered charity.

2. Salaries include an accrued bonus of $12,000 awarded on December 31, 2020, to a manager. The bonus will be paid in three equal instalments of $4,000 on April 30, 2021, August 31, 2021, and December 31, 2021.

3. Expenses include accounting amortization/depreciation of $102,000

Required:

a.         Calculate the undepreciated capital cost for tax purposes for each class of depreciable property at the end of the 2019 and 2020 taxation years after maximum CCA claims are made.

b.         Note any Terminal Losses or Recapture on the sale of the restaurant assets in 2020.

c.         For the taxation year ended December 31, 2020, calculate KCR’s net income for tax purposes. Start with Net Income per Financial Statements, and add or subtract adjustments to arrive at Net Income for tax purposes