Questions

The income statement that has been prepared by Recal Ltd.s accountant for the current year ending July 30 is as follows:

Sales Revenue			730,000
Cost of Goods Sold			210,000
Gross Profit			520,000
Operating Expenses:
	Salaries and Wages	120,000
	Interest and Property taxes	25,000
	Amortization expense (see Note 1)	61,000
	Charitable donations	5,400
	Life Insurance (see Note 2)	6,000
	Meals and Entertainment (see Note 3)	54,000
	Repairs and Maintenance (see Note 4)	60,000
	Other operating expenses	65,000	396,400
Operating income			123,600
Other revenue and expenses
	Loss on sale of delivery vans	-68,000
	Interest revenue	4,300
	Gain on sale of shares (Note 5)	10,900
	Dividends from taxable Canadian corporations	10,200	-42,600
Income before taxes			81,000
	Income tax expense		10,430
Income after taxes			70,570

Note 1: Recals assets include:

	Cost	NBV	UCC
Land	350,000	375,000
Building	560,000	380,000	340,000
Furniture and equipment	325,000	117,000	97,150
Delivery vans	320,000	186,000	115,280

During the year, Recal decided it would most cost effective to rent delivery vans as necessary than own the vehicles. Proceeds of $105,500 were received on the sale of the vans. New equipment and furniture was purchased for $51,500.

Note 2: Recal carries a life insurance policy on the major shareholder to ensure the company can buy out the Heirs shares.

Note 3: Meals and Entertainment expense included $4,800 to sponsor local childrens sports teams. The remainder was spent while entertaining clients.

Note 4: $22,000 was spent to replace worn carpet with carpet of similar grade. The balance was spent to install hardwood flooring in the C suite.

Note 5: Recal sold shares for proceeds of $22,200. The shares had an original cost of $31,500.

Note 6: Recal has $5,500 (from 1992) in their net capital loss pool, and a $12,500 (from 2020) balance in their non-capital loss carryover pool.

REQUIRED: Ignore the temporary provision allowing immediate expensing of assets on pages 276 to 278 of your textbook.

Assignment 1 Reconciliation Schedule:

Reconciliation Schedule For example, see SSP 6-11 Solution on page S-128 in the Study Guide.