Problem 5-Calculation of Corporate Income Tax 20 marks (2 marks per adjustment) Chutneys Grill (located in South Surrey) has just completed its fiscal year ended December 31, 2020. Using ASPE, the accountant has determined that, for that taxation year, the Company has experienced a Net Loss Before Taxes and Amortization Expense of $113,000. The accountant provides the following information that was used in the determination of the Net Loss for accounting purposes: 1. The Company was forced to pay damages of $12,300 for failure to perform a service contract. The amount was paid when the client threatened to sue for breach of contract. The $12,300 was expensed in the current year for accounting purposes. 2. The Company's property tax expense of $19,500 includes an amount of $1,100 that was paid to the city of Kelowna, where the Company maintains a fishing lodge for its employees. 3. The Company's expenses include contributions to registered Canadian charities of $13,700. 4. The Company's expenses include costs of new landscaping at their administration building in the amount of $9,800. 5. The Company deducted a loss of $10,100 resulting from a theft by one of its clerical employees. 6. The current salary expense included a bonus payable to the Company's president in the amount of $14,500. It will be paid on March 1, 2021. 7. The Company incurred $5,000 of advertising expenses paid to a U.S. television station to attract customers in the U.S. 8. The president and his wife attended a convention that resulted in $5,200 in travel expenses for the Company. Of this amount, $1,900 related to the fact that the president's wife chose to accompany him on this trip. 9. The Company's legal expenses for the year amount to $10,500 and were related to the following transactions: a. Defense of breach of contract (see item 1) b. Cost of issuing new common shares to shareholders c. Defense costs related to income tax audit $2,450 4,450 10. The Company's expenses included $12,500 of business meals and entertainment expenses. $1,000 relates to the Company's Christmas party to which all employees were invited. 3,600 Required: Compute the Company's Net Income for Tax Purposes (NIFTP) for the year ended December 31, 2020. Disregard CCA. Indicate why you have or have not included any of the preceding items in your calculations. Please indicate clearly whether each adjustment is an addition (+) or a deduction (-). ** Question continued on the next page Adjustment What is the starting point for calculating net income for tax purposes (NIFTP)? # 1 - The Company was forced to pay damages of $12,300 for failure to perform a service contract. The amount was paid when the client threatened to sue for breach of contract. The $12,300 was expensed in the current year for accounting purposes. # 2 - The Company's property tax expense of $19,500 includes an amount of $1,100 that was paid to the city of Kelowna, where the Company maintains a fishing lodge for its employees. #3 The Company's expenses include contributions to registered Canadian charities of $13,700. Amount #4- The Company's expenses include costs of new landscaping at their administration building in the amount of $9,800. #5- The Company deducted a loss of $10,100 resulting from a theft by one of its clerical employees. #6- The current salary expense included a bonus payable to the Company's president in the amount of $14,500. It will be paid on March 1, 2021. #7-The Company incurred $5,000 of advertising expenses paid to a U.S. television station to attract customers in the U.S. #8 The president and his wife attended a convention that resulted in $5,200 in travel expenses for the Company. Of this amount, $1,900 related to the fact that the president's wife chose to accompany him on this trip. # 9- The Company's legal expenses for the year amount to $10,500 and were related to the following transactions: Defense of breach of contract (see item 1) Cost of issuing new common shares to shareholders Defense costs related to income tax audit $2,450 3,600 4,450 # 10- The Company's expenses included $12,500 of business meals and entertainment expenses. $1,000 relates to the Company's Christmas party to which all employees were invited. Net Income for Tax Purposes (Total) Problem 5-Calculation of Corporate Income Tax 20 marks (2 marks per adjustment) Chutneys Grill (located in South Surrey) has just completed its fiscal year ended December 31, 2020. Using ASPE, the accountant has determined that, for that taxation year, the Company has experienced a Net Loss Before Taxes and Amortization Expense of $113,000. The accountant provides the following information that was used in the determination of the Net Loss for accounting purposes: 1. The Company was forced to pay damages of $12,300 for failure to perform a service contract. The amount was paid when the client threatened to sue for breach of contract. The $12,300 was expensed in the current year for accounting purposes. 2. The Company's property tax expense of $19,500 includes an amount of $1,100 that was paid to the city of Kelowna, where the Company maintains a fishing lodge for its employees. 3. The Company's expenses include contributions to registered Canadian charities of $13,700. 4. The Company's expenses include costs of new landscaping at their administration building in the amount of $9,800. 5. The Company deducted a loss of $10,100 resulting from a theft by one of its clerical employees. 6. The current salary expense included a bonus payable to the Company's president in the amount of $14,500. It will be paid on March 1, 2021. 7. The Company incurred $5,000 of advertising expenses paid to a U.S. television station to attract customers in the U.S. 8. The president and his wife attended a convention that resulted in $5,200 in travel expenses for the Company. Of this amount, $1,900 related to the fact that the president's wife chose to accompany him on this trip. 9. The Company's legal expenses for the year amount to $10,500 and were related to the following transactions: a. Defense of breach of contract (see item 1) b. Cost of issuing new common shares to shareholders c. Defense costs related to income tax audit $2,450 4,450 10. The Company's expenses included $12,500 of business meals and entertainment expenses. $1,000 relates to the Company's Christmas party to which all employees were invited. 3,600 Required: Compute the Company's Net Income for Tax Purposes (NIFTP) for the year ended December 31, 2020. Disregard CCA. Indicate why you have or have not included any of the preceding items in your calculations. Please indicate clearly whether each adjustment is an addition (+) or a deduction (-). ** Question continued on the next page Adjustment What is the starting point for calculating net income for tax purposes (NIFTP)? # 1 - The Company was forced to pay damages of $12,300 for failure to perform a service contract. The amount was paid when the client threatened to sue for breach of contract. The $12,300 was expensed in the current year for accounting purposes. # 2 - The Company's property tax expense of $19,500 includes an amount of $1,100 that was paid to the city of Kelowna, where the Company maintains a fishing lodge for its employees. #3 The Company's expenses include contributions to registered Canadian charities of $13,700. Amount #4- The Company's expenses include costs of new landscaping at their administration building in the amount of $9,800. #5- The Company deducted a loss of $10,100 resulting from a theft by one of its clerical employees. #6- The current salary expense included a bonus payable to the Company's president in the amount of $14,500. It will be paid on March 1, 2021. #7-The Company incurred $5,000 of advertising expenses paid to a U.S. television station to attract customers in the U.S. #8 The president and his wife attended a convention that resulted in $5,200 in travel expenses for the Company. Of this amount, $1,900 related to the fact that the president's wife chose to accompany him on this trip. # 9- The Company's legal expenses for the year amount to $10,500 and were related to the following transactions: Defense of breach of contract (see item 1) Cost of issuing new common shares to shareholders Defense costs related to income tax audit $2,450 3,600 4,450 # 10- The Company's expenses included $12,500 of business meals and entertainment expenses. $1,000 relates to the Company's Christmas party to which all employees were invited. Net Income for Tax Purposes (Total)