PROBLEM THREE [ITA: 9(1); 13(1); 18(1)(a), (b); 20(1)(a), (b); 40(1); 78(4); Reg. 1100(1), (2), (3); 1101(5p)] 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: Legal fees for the cost of incorporation Cooking equipment including food processors Franchise #1 Franchise #2 Cutlery, plates, glasses, and cups Computer software for restaurant accounting Building (constructed after March 18, 2007) $ 4,000 320,000 40,000 80,000 115,000 3,000 220,000 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. The Income Statement prepared for accounting purposes for the year ended December 31, 2020, with additional information, is provided below: $1,845,000 1,011,000 834,000 Sales Cost of sales Gross profit Rent, property taxes, and insurance Salaries and wages General overhead Advertising and other $ 72,000 275,000 301,000 96,000 744.000 90,000 60.000 (22,000) $ 128,000 Gain on sale of goodwill Net losses on sale of fixed assets Net income 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. PROBLEM THREE [ITA: 9(1); 13(1); 18(1)(a), (b); 20(1)(a), (b); 40(1); 78(4); Reg. 1100(1), (2), (3); 1101(5p)] 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: Legal fees for the cost of incorporation Cooking equipment including food processors Franchise #1 Franchise #2 Cutlery, plates, glasses, and cups Computer software for restaurant accounting Building (constructed after March 18, 2007) $ 4,000 320,000 40,000 80,000 115,000 3,000 220,000 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. The Income Statement prepared for accounting purposes for the year ended December 31, 2020, with additional information, is provided below: $1,845,000 1,011,000 834,000 Sales Cost of sales Gross profit Rent, property taxes, and insurance Salaries and wages General overhead Advertising and other $ 72,000 275,000 301,000 96,000 744.000 90,000 60.000 (22,000) $ 128,000 Gain on sale of goodwill Net losses on sale of fixed assets Net income 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