You have been asked to prepare a Schedule 1 reconciliation of accounting Net Income and Net Income For Tax Purposes for the year ending December 31. Available information includes the following:

1. A capital asset was sold near the end of the year for $93,000. It had a cost of $89,300 and a net book value of $26,400. It was not the last asset in its CCA class and the UCC of this class was $263,000 before the disposition. There were no other additions or dispositions during the year.

2. During the year, the company has expensed estimated warranty costs of $22,000.

3. During the year, the Company acquired goodwill at a cost of $68,000. Since there was no impairment of the goodwill during the year, no write-down was required for accounting purposes.

4. Discount amortization on the companys bonds payable was $2,300 for the current year.

Required: Determine the addition and/or deduction that would be made in Schedule 1 for each of the preceding items.

Exam Exercise Twelve - 2 (Schedule 1 Reconciliation)

The following items may involve an adjustment of a corporation's accounting Net Income in order to arrive at the Net Income For Tax Purposes figure.

1. Premium amortization on the company's bonds payable was $5,600 for the current year.

2. The company incurred landscaping costs of $16,000 during the current year. For ac- counting purposes, these costs are being amortized at the rate of $1,600 per year.

3. The company sold a depreciable asset during the year for $145,000. The asset had a capi- tal cost of $120,000 and a net book value of $85,000. It was not the last asset in its CCA class and the UCC of this class was $105,000 before the disposition. There were no other additions or dispositions during the year.

4. For accounting purposes, the company deducted $4,500 of interest charged on late tax instalments.

Required: Determine the addition and/or deduction that would be made in Schedule 1 for each of the preceding items.

Exam Exercise Twelve - 3 (Corporate Taxable Income)

The FG Company had Net Income For Tax Purposes for the year ending December 31, 2018 of $275,000. This amount included $13,720 in taxable capital gains, as well as $15,600 in divi- dends received from taxable Canadian corporations. Also during 2018, the Company made donations to registered charities of $9,100.

At the beginning of the year, the Company had available a non-capital loss carry forward of $74,000, as well as a net capital loss carry forward of $20,000 [(1/2)($40,000)].

Determine the Companys minimum Taxable Income for the year ending December 31, 2018 and the amount and type of any carry forwards available at the end of the year.

Exam Exercise Twelve - 4 (Corporate Taxable Income)

For the year ending December 31, 2018, Garba Inc. had Net Income For Tax Purposes of $472,000. This amount included $22,000 in dividends received from taxable Canadian companies, as well as $12,400 in net taxable capital gains. The Company also made chari- table donations during 2018 of $14,500.

At the beginning of 2018, the Company had a non-capital loss carry forward of $102,000, as well as a net capital loss carry forward of $56,000.

Determine the Companys minimum Taxable Income for the year ending December 31, 2018 and the amount and type of any carry forwards available at the end of the year.

Exam Exercise Twelve - 5 (Stop Loss Rules)

On February 21, 2018, Markham Inc. acquires 1,000 shares of Darcy Ltd., a widely held public company, at a cost of $27.60 per share. On March 1, 2018, these shares pay a dividend of $1.97 per share. Markham sells the shares on March 25, 2018 for $22.11 per share. Markham Inc. has taxable capital gains of $23,000 in the year.

What is the amount of the allowable capital loss, if any, that Markham Inc. will include in its tax return for the taxation year ending December 31, 2018?

Exam Exercise Twelve - 6 (Stop Loss Rules)

During March, 2018, Invest Inc. acquires 5,000 shares of Glee Ltd., a widely held public company for $18.95 per share. In May, 2018, the directors of Glee declare and pay a dividend of $1.50 per share. In September, 2018, Invest sells the 5,000 Glee shares for $16.75 per share. Invest Inc. has over $50,000 in 2018 taxable capital gains on other share transactions.

What is the amount of the allowable capital loss, if any, that Invest Inc. will include in its tax return for the taxation year ending December 31, 2018?

Exam Exercise Twelve - 7 (Non-Capital Loss Carry Forward)

Badon Inc. is a Canadian public company. The following information is for its taxation year ending December 31, 2018:

Capital Gains On Capital Asset Sales Capital Losses On Public Company Stock Sales Allowable Business Investment Loss Dividends Received Canadian Source Interest Income Net Business Loss

$204,000 171,000 10,450 87,000 53,100 427,500

The Company also has available a net capital loss carry forward of $37,400 [(1/2)($74,800)]. It would like to deduct this loss during the current year.

Determine the non-capital loss balance [ITA 111(8)(b)] for Badon Inc. at the end of the 2018 taxation year and any available net capital loss carry forward.