Question #1

It is now September 18, 2020. You, a CPA, work in the tax department of a public accounting firm and have been called into the office of a senior partner, who is bringing you onto the engagement for a new client. Senior Partner: "Hi CPA. Thank you for joining me. I wanted to give you some background on a new client of ours, Em&Em Limited ("E&E"). E&E is well known chocolate manufacturer located in Toronto, Ontario owned entirely by Mrs. Green. E&E has a July 31st fiscal year-end and is a Canadian controlled private corporation ("CCPC"). Mrs. Green is divorced. Historically, Mrs. Green focused primarily on the operations of the business, and was never involved in the review of the financial statements and tax returns, which were always prepared in-house by the company's controller. The controller was fired back in June 2020, and Mrs. Green reached out to us for some clarification on the tax treatment of a number of items relating to E&E as well as her personal income taxes. An email from Mrs. Green can be found in Appendix I. Please ensure that you address all of her queries by providing detailed explanations. memo to me addressing these tax issues and provide recommendations, when appropriate. Ignore all COVID-19 extensions and relief programs." CPA: "No problem. When would you like these responses by?" Senior Partner: "I would like it on my desk by Monday at 9 am. Enjoy your weekend!"

Appendix I- Email from Mrs. Green Hi Senior Partner, As discussed on the phone my team is frantically trying to understand the tax adjustments required for the upcoming July 31, 2020 year-end. As you know we had to fire our controller at a very inopportune time - right before our year-end! What are the tax treatments for the following items expensed in E&E's financial statements for the July 31, 2020 year-end? Specifically, I would like to know what is deductible versus what is non-deductible and why the tax treatment is such - I need to learn!

E&E incurred $65,000 in legal fees, broken down as follows: o Fees relating to the purchase of a new warehouse, $30,000. o Fees relating to the issuance of new preference shares, $15,000. o Fees relating to regular maintenance of the minute books and business queries, $20,000.

Severance in the amount of $80,000 was accrued at year-end. The amount was paid, in full, to the past employee (the controller) on September 1, 2020.

Salary of $5,000 paid to my son during the summer months while he worked in the new chocolate warehouse. This salary is competitive with wages paid to other college students working in the warehouse.

Impairment on goodwill was recorded for accounting purposes in the amount of $25,000.

We gave each of our employees branded t-shirts, pens and hats as their Christmas gift back in December. Cost of these items amounted to $2,000 in total.

A few last questions. As you know, I receive a salary (which is T4'ed to me each year) and the occasional dividend from E&E. This is my primary source of income. However, I do earn a small amount of investment income from an investment portfolio I own. Since I own 100% of E&E, I am considered self-employed, correct? I haven't filed my 2019 tax return yet, but I figured since my tax return is due June 15th (?), I won't be too late. My estimated tax payable for 2019 is $10,000. Oh, and I late filed my 2018 return as well - I can't seem to get my returns done in time! Can you give me an estimate of my outstanding liability for 2019, including any penalties? Do I have to pay anything else in 2020? Thanks for your help! Mrs. Green

Question: prepare a memorandum in proper format to Green to his concerns