Olin's parents have been helping him by taking orders and packaging product for shipping. They refuse any payment for their work as they are both bored with the retirement life and, November, 2019, after discovering that her bookkeeper, Ponzi Madoff, had been defrauding her, Angela fired him and took over the bookkeeping responsibilities herself, despite having a limited knowledge of accounting. She has produced the following Income Statement and miscellaneous financial information for the year ended December 31, 2019 4. Travel costs included in General and Administrative costs) include both air travel and travel reimbursement to employees for business travel. The company policy is to reim- burse employees $0.62 per kilometer for the business use of their automobiles. During and one employee drove 7,500 kilometers. None of the kilometer based allowances are the year, seven employees each drove 4,000 kilometers on employment related activities Telephone (Total Charge for Advertising In Various Canadian Media Insurance On Business Inventories Cleaning Services For Office And Shipping Space Meals And Entertainment For Suppliers Credit Card Fees Estimated Bad Debts 6,438 423 3,250 2,450 2,300 1,450 unlike their son, feel they have more than adequate income for their modest needs. Required: A. Can Olin deduct work space in the home costs? Briefly explain your conclusion B. Compute the minimum net business income or loss that Olin must report in his 2019 C. Briefly describe any issues that should be discussed with Olin concerning the work space Assignment Problem Six - 9 (Corporate Business Income With CCA) Angie's Amazing Getups Incorporated is a Canadian controlled private corporation with a head office in London, Ontario. The company is a manufacturer of high end custom costumes and makeup used in movie and theatre productions with sales in Canada and the U.S. The company started in business in 2016 when the sole shareholder, Angela Q. Snodgrass, was photographed by the paparazzi after a particularly enthusiastic night of partying. When Angela saw herself on the front page of every tabloid newspaper the next day, she knew that fame was not for her. Since Angela was a highly trained clothing designer and makeup artist, she felt she would be able to use those skills to start her own business and keep out of the limelight. Income Or Loss From A Business Assignment Problems 299 in needs your Angie's Amazing Getups Incorporated Income Statement Year Ending December 31, 2019 Sales $7,578,903 ( 5,468,752) $2,110,151 0. ( 1,410,500) $ 699,651 Cost Of Goods Sold Gross profit Expenses General And Administrative Expenses (5852,000) Amortization Expense ( 550,000) Interest ( 8,500) Operating Income Other Income: Loss On Disposal Of Limited Life Licence Interest Income Income Before Income Taxes Income Taxes Current ($182,000) Future (35,000) Net Income ( 17,000) 110,532 $ 793,183 217,000) $ 576,183 During your review of Angela's work and last year's tax return for the corporation, you have made the following notes. 1. In the accounting records, the Allowance For Doubtful Accounts was $25,000 at December 31, 2019, and $20,000 at December 31, 2018. During 2019, the company had actual write-offs of $11,750. As a result, the accounting Bad Debt Expense was $16,750. This amount is included in General and Administrative Expenses on the Income Statement. A review of the listing of receivables (for tax purposes), indicates that the actual items that may be uncollectible total $15,000 at December 31, 2019. In 2018, the company deducted a reserve for bad debts of $13,000 for tax purposes. 9 -e a -S 2. General And Administrative Expenses include: Donations To Registered Charities $ 27,000 Accrued Bonuses - Accrued September 1, 2019, Paid June 15, 2020 78,000 Meals And Entertainment Costs: $1,000 Per Month For Premium Membership At Golf Club For Angie 12,000 $200 Per Month For Memberships At Golf Club For Salespeople 2,400 $32,000 For Meals While Entertaining Clients 32,000 $5,000 in Food Costs For Angie's Personal Chef For Her Meals At Home 5,000 $6,000 For Annual Summer BBQ For All Staff 6,000 Sponsorship of various Theatre Productions That Use Angie's Costumes 100,000 Advertising In A U.S. Theatre Magazine Directed At U.S. Clients 15,000 New Software Purchased October 1, 2019 38,000 ($13,000 for Applications And $25,000 For Systems) Accounting And Legal Fees For Amended Articles of Incorporation 6,000 Costs To Attend Annual Convention of Costume Designers Held in Thailand 17.000 5 n t 300 Chapter 6 Assignment Problems $5,000 2,000 1,500 3. Interest Expense consists of the following: Interest Expense - Operations Penalty And Interest For Late And Insufficient Instalment Payments Interest On Late Payment of Municipal Property Taxes required to be included in the income of the employees. 5. Maximum CCA has always been taken on all assets. The undepreciated capital com at January 1: $650,000 Class 1 (4%) 95,000 Class 8 17,850 Class 10.1 68,000 Class 14 Nil Class 14.1 65,000 Class 44 135,000 Class 53 6. During 2019, a limited life licence to produce costumes based on a popular theme park was sold for $63,000. The original cost of this licence was $95,000 and its net book value at the time of sale was $80,000. The licence was the only asset in Class 14. 7. Purchases and sales of equipment and other capital assets made during 2019 were as follows (note: some items are discussed in other sections of this problem). All amounts were capitalized for accounting purposes: a. The company purchased land and constructed a new building on it during the year. The building will be used 95% for manufacturing and processing. The cost of the land was $350,000, and the building cost $475,000 to construct. b. The company purchased a new set of furniture for the reception area for $1,200. c. Some outdated desks used by the finance department with a cost of $5,000 were sold for proceeds of $3,500. d. Landscaping of the grounds around the new building cost $35,000. This amount was capitalized for accounting purposes. e. A company car for use by the president of the company was purchased for $90,000, This car replaced the only other existing company car, which was purchased in 2017 for $95,000. The old car was sold for $60,000. f. A fence around the new building, high enough to prevent the paparazzi from taking pictures of Angela while she was at the office cost $52,000. 8. The company sold some shares that had been purchased several years ago. The capital gain on these shares was $152,708. Angela didn't know how to account for this, so she credited the entire amount to retained earnings. Required: Determine Angie's Amazing Getups Incorporated's minimum Net Income For Tan Purposes for the year ending December 31, 2019. Ignore GST/HST/PST implications. Olin's parents have been helping him by taking orders and packaging product for shipping. They refuse any payment for their work as they are both bored with the retirement life and, November, 2019, after discovering that her bookkeeper, Ponzi Madoff, had been defrauding her, Angela fired him and took over the bookkeeping responsibilities herself, despite having a limited knowledge of accounting. She has produced the following Income Statement and miscellaneous financial information for the year ended December 31, 2019 4. Travel costs included in General and Administrative costs) include both air travel and travel reimbursement to employees for business travel. The company policy is to reim- burse employees $0.62 per kilometer for the business use of their automobiles. During and one employee drove 7,500 kilometers. None of the kilometer based allowances are the year, seven employees each drove 4,000 kilometers on employment related activities Telephone (Total Charge for Advertising In Various Canadian Media Insurance On Business Inventories Cleaning Services For Office And Shipping Space Meals And Entertainment For Suppliers Credit Card Fees Estimated Bad Debts 6,438 423 3,250 2,450 2,300 1,450 unlike their son, feel they have more than adequate income for their modest needs. Required: A. Can Olin deduct work space in the home costs? Briefly explain your conclusion B. Compute the minimum net business income or loss that Olin must report in his 2019 C. Briefly describe any issues that should be discussed with Olin concerning the work space Assignment Problem Six - 9 (Corporate Business Income With CCA) Angie's Amazing Getups Incorporated is a Canadian controlled private corporation with a head office in London, Ontario. The company is a manufacturer of high end custom costumes and makeup used in movie and theatre productions with sales in Canada and the U.S. The company started in business in 2016 when the sole shareholder, Angela Q. Snodgrass, was photographed by the paparazzi after a particularly enthusiastic night of partying. When Angela saw herself on the front page of every tabloid newspaper the next day, she knew that fame was not for her. Since Angela was a highly trained clothing designer and makeup artist, she felt she would be able to use those skills to start her own business and keep out of the limelight. Income Or Loss From A Business Assignment Problems 299 in needs your Angie's Amazing Getups Incorporated Income Statement Year Ending December 31, 2019 Sales $7,578,903 ( 5,468,752) $2,110,151 0. ( 1,410,500) $ 699,651 Cost Of Goods Sold Gross profit Expenses General And Administrative Expenses (5852,000) Amortization Expense ( 550,000) Interest ( 8,500) Operating Income Other Income: Loss On Disposal Of Limited Life Licence Interest Income Income Before Income Taxes Income Taxes Current ($182,000) Future (35,000) Net Income ( 17,000) 110,532 $ 793,183 217,000) $ 576,183 During your review of Angela's work and last year's tax return for the corporation, you have made the following notes. 1. In the accounting records, the Allowance For Doubtful Accounts was $25,000 at December 31, 2019, and $20,000 at December 31, 2018. During 2019, the company had actual write-offs of $11,750. As a result, the accounting Bad Debt Expense was $16,750. This amount is included in General and Administrative Expenses on the Income Statement. A review of the listing of receivables (for tax purposes), indicates that the actual items that may be uncollectible total $15,000 at December 31, 2019. In 2018, the company deducted a reserve for bad debts of $13,000 for tax purposes. 9 -e a -S 2. General And Administrative Expenses include: Donations To Registered Charities $ 27,000 Accrued Bonuses - Accrued September 1, 2019, Paid June 15, 2020 78,000 Meals And Entertainment Costs: $1,000 Per Month For Premium Membership At Golf Club For Angie 12,000 $200 Per Month For Memberships At Golf Club For Salespeople 2,400 $32,000 For Meals While Entertaining Clients 32,000 $5,000 in Food Costs For Angie's Personal Chef For Her Meals At Home 5,000 $6,000 For Annual Summer BBQ For All Staff 6,000 Sponsorship of various Theatre Productions That Use Angie's Costumes 100,000 Advertising In A U.S. Theatre Magazine Directed At U.S. Clients 15,000 New Software Purchased October 1, 2019 38,000 ($13,000 for Applications And $25,000 For Systems) Accounting And Legal Fees For Amended Articles of Incorporation 6,000 Costs To Attend Annual Convention of Costume Designers Held in Thailand 17.000 5 n t 300 Chapter 6 Assignment Problems $5,000 2,000 1,500 3. Interest Expense consists of the following: Interest Expense - Operations Penalty And Interest For Late And Insufficient Instalment Payments Interest On Late Payment of Municipal Property Taxes required to be included in the income of the employees. 5. Maximum CCA has always been taken on all assets. The undepreciated capital com at January 1: $650,000 Class 1 (4%) 95,000 Class 8 17,850 Class 10.1 68,000 Class 14 Nil Class 14.1 65,000 Class 44 135,000 Class 53 6. During 2019, a limited life licence to produce costumes based on a popular theme park was sold for $63,000. The original cost of this licence was $95,000 and its net book value at the time of sale was $80,000. The licence was the only asset in Class 14. 7. Purchases and sales of equipment and other capital assets made during 2019 were as follows (note: some items are discussed in other sections of this problem). All amounts were capitalized for accounting purposes: a. The company purchased land and constructed a new building on it during the year. The building will be used 95% for manufacturing and processing. The cost of the land was $350,000, and the building cost $475,000 to construct. b. The company purchased a new set of furniture for the reception area for $1,200. c. Some outdated desks used by the finance department with a cost of $5,000 were sold for proceeds of $3,500. d. Landscaping of the grounds around the new building cost $35,000. This amount was capitalized for accounting purposes. e. A company car for use by the president of the company was purchased for $90,000, This car replaced the only other existing company car, which was purchased in 2017 for $95,000. The old car was sold for $60,000. f. A fence around the new building, high enough to prevent the paparazzi from taking pictures of Angela while she was at the office cost $52,000. 8. The company sold some shares that had been purchased several years ago. The capital gain on these shares was $152,708. Angela didn't know how to account for this, so she credited the entire amount to retained earnings. Required: Determine Angie's Amazing Getups Incorporated's minimum Net Income For Tan Purposes for the year ending December 31, 2019. Ignore GST/HST/PST implications
