Question
You have been provided the following information from your client; a corporation called XYZ Limited. Required: Calculate the total business income for tax purposes for
You have been provided the following information from your client; a corporation called XYZ Limited.
Required: Calculate the total business income for tax purposes for XYZ Limited for 2020. I would suggest preparing this in excel (do not copy and paste in word). Use supporting notes (1,2, 3, or a, b, c, etc.) for the following:
- Support each item included in your business income calculation.
- Support each item omitted from your business income calculation.
- When supporting your items ensure you are specific as to whether the item is from the ITA or from a CRA Administrative document (i.e. Folio or Guide).
XYZ Limited | |
Income Statement | |
For the year ended December 31, 2020 | |
Sales | $98,700,000 |
Cost of Goods Sold | $32,500,000 |
Gross Profit | $66,200,000 |
General and administrative expenses (Notes a-e) | $11,200,000 |
Selling expenses (Note f) | $15,644,000 |
Income from operations | $39,356,000 |
Other income (Notes g-j) | $25,000 |
Provision for income taxes (accounting) | $10,320,000 |
Net income | $29,011,000 |
The following detailed information has also been provided:
- The professional and legal fees account included the following items:
Cost incurred to renegotiate the company bank loans | $15,000 |
Appraisal costs to determine the value of a machine (used as collateral) for a bank loan | $2,500 |
Cost incurred to defend the company against a wrongful dismissal | $75,000 |
Legal and accounting fees to issue shares | $12,000 |
- The following is a breakdown of the amounts paid by XYZ Ltd. towards insurance for its employees:
$1,000,000 insurance policy on the life of the president included in insurance: expense ($200 per month) | $2,400 |
Group term life insurance for employees included in salaries and benefits ($6,250 x 12 months) | $2,500 |
XYZ Ltd. is the beneficiary of the policy on the president. That policy is used as collateral on the bank loan. This is because the president plays a significant role in the success of the XYZ Ltd. business. The premiums on the policy are equal to the net cost of the insurance for the policy.
- XYZ Ltd. made significant repairs to the outside of the building for a total cost of $50,000. Of that amount, $10,000 relates to landscaping costs.
- Also included in general and administrative expenses were the following costs:
Interest on late payment of municipal taxes | $2,500 |
Loss from theft by the payroll clerk | $10,000 |
Donations to various registered charities | $10,000 |
Political contributions | $10,000 |
Amortization | $134,000 |
- A total of $9,700 was included in the financial statements as amortization of a bond discount for bonds issued three years ago.
- The selling expenses account included the following items:
Sponsorship costs local events | $1,000 |
Meals/entertainment costs of salespeople | $210,000 |
Membership for salespeople at local golf courses | $15,000 |
Staff holiday party and summer barbecue | $2,500 |
Basketball tickets given to clients | $9,500 |
- During the year XYZ Ltd. sold some of its capital assets for a loss of $75,000.
- A total of $11,500 was incurred to organize financing for the bank loan.
Other relevant information:
- Capital cost allowance for the year was $74,000.
- A total of $144,000 in management bonuses have been accrued for in the financial statements. They were paid on June 15, 2021.
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