taxation question

Plum Ltd. is a CCPC owned 100% by Jenifer. Plum operates a restaurant business and has some income of $354,000 before income tax. You have been retained to determine the corporation's income tax liability and to provide advice Question ts. Plum's financial statements for the year ended December 31, 2018 reported a net on other tax matters. You have gathered the information outlined in Exhibit 2-1. Required a Under Part lof the lhacome Tas dct,calculate Pum's minimtinome for tax purposes and minimum taxable income for the 2018 taxation year EXHIBIT 2-1 6 000 PLUM LTD. 2 2018 Financial Information The net income of $354,000 is summarized as follows: Income from wholesale operations Dividends Income Interest income-bond 1. 334,000(o 2o,o0ox ii) 63000 (2o,00'a 15,000 5,000 354,000 The diviend income consist of $,000 om PTC. td, a Canadian public corporation,and $12,000 form Rain Inc., a CCPC that operates an active business. On December 31, 2018, Plum proceeds oh December 31, 2018 and the balance will be received in equal instalments.over 2. On January 1,2018, Plum acquired a new restaurant and paid $150,000 as franchise fee. The its shares in Rain for $70,000 These shares originally cost $50,000. Plum received $7,000 of the e next 5 yea franchise term expires on December 31, 2027, but is renewable for another 10Years if certain operating conditions are met. The lease for the land, building, and equipment has a S-year term .-. with another 5-year renewal option. .wre- Also on July 1, 2018, Plum sold its only other restaurant. Proceeds included the following: Land Building Plum had started this restaurant in 2013 after purchasing land for $30,000 and a building for ucc: 450,000. The office equipment was moved to the new restaurant. $50,000 400,000esrT Ty Less 8. A review of Plum's 2017 corporate tax return provides the following information: Proteck 40 4 Undepreciated capital cost Class 1 Class 10 410,000 20,000 55% Class 50 6,500 4. On November 1, 2018, Plum purchased new computers costing $20.000. The old computers, S. Plum purchased two automobiles- one for the president costing $40,000 and one for the 6. Due to market conditions, the company issued a discounted bnd on July 1, 2014. Interest which originally cost $12,000 (purchased in 2015), were sold for $2.000 general manager Costing $25,000. expense of $10,000 was deducted from the accounting income. This amount included S discount amortization. On December 31, 2014, Plum sold the shares of a public company for $10,000. These shares were acquired in 2010 for$7,000) Plum also paid $400 ommission to the selling broker 8. The income statement for the year ended December 31, 2018 included the following: Legal expenses Promotional expenses Contribution to employees deferred profit sharing plan Increase in reserve for potential merchandise theft Amortization 10,500 20,000 12,000 2,400 18,000 Legal expenses include $6,000 for negotiating the franchise agreement forthe new restaurant $1,000 for fillig annual corporate return, $2,00 for drafting an agreement for a long-term loan from a finance company, and $1,500 paid to a collection agency for the collection of bad debts uk Promotional expenses include $1,500 for the property taxes on a fishing lodge used by the suppliers, $35 that is not systems software.hd e cost to TV advertising and $15,000 for the computer software Plum Ltd. is a CCPC owned 100% by Jenifer. Plum operates a restaurant business and has some income of $354,000 before income tax. You have been retained to determine the corporation's income tax liability and to provide advice Question ts. Plum's financial statements for the year ended December 31, 2018 reported a net on other tax matters. You have gathered the information outlined in Exhibit 2-1. Required a Under Part lof the lhacome Tas dct,calculate Pum's minimtinome for tax purposes and minimum taxable income for the 2018 taxation year EXHIBIT 2-1 6 000 PLUM LTD. 2 2018 Financial Information The net income of $354,000 is summarized as follows: Income from wholesale operations Dividends Income Interest income-bond 1. 334,000(o 2o,o0ox ii) 63000 (2o,00'a 15,000 5,000 354,000 The diviend income consist of $,000 om PTC. td, a Canadian public corporation,and $12,000 form Rain Inc., a CCPC that operates an active business. On December 31, 2018, Plum proceeds oh December 31, 2018 and the balance will be received in equal instalments.over 2. On January 1,2018, Plum acquired a new restaurant and paid $150,000 as franchise fee. The its shares in Rain for $70,000 These shares originally cost $50,000. Plum received $7,000 of the e next 5 yea franchise term expires on December 31, 2027, but is renewable for another 10Years if certain operating conditions are met. The lease for the land, building, and equipment has a S-year term .-. with another 5-year renewal option. .wre- Also on July 1, 2018, Plum sold its only other restaurant. Proceeds included the following: Land Building Plum had started this restaurant in 2013 after purchasing land for $30,000 and a building for ucc: 450,000. The office equipment was moved to the new restaurant. $50,000 400,000esrT Ty Less 8. A review of Plum's 2017 corporate tax return provides the following information: Proteck 40 4 Undepreciated capital cost Class 1 Class 10 410,000 20,000 55% Class 50 6,500 4. On November 1, 2018, Plum purchased new computers costing $20.000. The old computers, S. Plum purchased two automobiles- one for the president costing $40,000 and one for the 6. Due to market conditions, the company issued a discounted bnd on July 1, 2014. Interest which originally cost $12,000 (purchased in 2015), were sold for $2.000 general manager Costing $25,000. expense of $10,000 was deducted from the accounting income. This amount included S discount amortization. On December 31, 2014, Plum sold the shares of a public company for $10,000. These shares were acquired in 2010 for$7,000) Plum also paid $400 ommission to the selling broker 8. The income statement for the year ended December 31, 2018 included the following: Legal expenses Promotional expenses Contribution to employees deferred profit sharing plan Increase in reserve for potential merchandise theft Amortization 10,500 20,000 12,000 2,400 18,000 Legal expenses include $6,000 for negotiating the franchise agreement forthe new restaurant $1,000 for fillig annual corporate return, $2,00 for drafting an agreement for a long-term loan from a finance company, and $1,500 paid to a collection agency for the collection of bad debts uk Promotional expenses include $1,500 for the property taxes on a fishing lodge used by the suppliers, $35 that is not systems software.hd e cost to TV advertising and $15,000 for the computer software