Question
Please the question asks for reconciliation between accounting net income after taxes and income for tax purposes supported by necessary computations. The following condensed income
Please the question asks for reconciliation between accounting net income after taxes and income for tax purposes supported by necessary computations.
The following condensed income statement for accounting purposes is for Payless Co. Ltd., a Canadian-controlled private corporation, for its fiscal year ended December 31, 2020. Payless Co. Ltd. was incorporated in 1970 and has continued in the same retail business since that time.
Payless Co. Ltd.
Income Statement
For the year ended December 31, 2020
Sales$600,000
Cost of salessee note (1)$365,000
Administrative and selling expensessee note (2)110,000475,000
125,000
Other income and extraordinary expensesee note (3)225,000
Net income before income taxes350,000
Provision for income taxes75,000
Net income after income taxes$275,000
Additional and Supplementary Information
Note (1)Cost of Sales
Inventory Dec. 31, 2019 net of a reserve for potential decline in
market prices of $10,000$100,000
Net purchases400,000
500,000
Inventory Dec. 31, 2020$150,000
Less:a reserve for a potential
decline in market prices15,000135,000
$365,000
Note (2)Administrative and selling expensesselected amounts only
A.Included in the advertising account were the following amounts:
- advertising in two upper New York State newspapers for mail
order purposes1,500
(ii)uniforms for a local girl's baseball team400
(iii)charitable donations1,250
B.Included in the financial costs account were the following selected amounts:
- purchase of customer list from a reliable source to solicit sales3,000
(ii)cost of issuing new share capital750
(iii)interest on a bank loan to acquire equipment
interest paid2,500
interest accrued1,500
(iv)appraisal of building just prior to sale500
Note (3)Other income and extraordinary expenses selected amounts only
A.The company sold the following capital property during 2020:
Book
CostValueProceeds
Securities$5,000$5,000$3,000
Land*50,00025,000125,000
Building*112,50030,000175,000
Truck8,000500200
*The land and building were sold to a developer who offered identical leased space at a very reasonable price. The lease was to have a life of three years with two successive five-year options to renew. The building and truck were the only assets in their respective tax classes.
Note (4)Other Information
A.The company had the following balances in selected tax accounts as at January 1, 2020:
Undepreciated capital cost- class 1$80,000
- class 87,500
- class 10750
B.During the year, the company acquired the following capital property:
(i)On June 1, 2020, an exclusive licence
to market a line of Japanese products
for five years5,000
(ii)On September 30, 2020, additional
merchandise display cases10,000
(iii)On November 1, 2020, paid contractor
for leasehold improvements on the land and
building which was leased above30,000
C.The net income above reflects a charge for depreciation for fixed assets of $9,650. The company wishes to claim the maximum capital cost allowance.
Required:
The reconciliation between accounting net income after taxes and income for tax purposes supported by necessary computations.
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