question archive For the year ending December 31, 2019, the Income Statement of Line Skis Ltd
For the year ending December 31, 2019, the Income Statement of Line Skis Ltd
Subject:AccountingPrice: Bought3
For the year ending December 31, 2019, the Income Statement of Line Skis Ltd., prepared in accordance with generally accepted accounting principles, is as follows:
Revenues $1,000,000
Expenses: Cost of Goods Sold $600,000
Selling and Administrative Expense 100,000
Amortization Expense 120,000
Other Expenses 50,000 ( 870,000)
Income Before Taxes $130,000
Income Tax Expense: Current $ 10,000
Future/Deferred ( 40,000) ( 30,000)
Net Income $100,000
Other Information:
1. The Company spent $15,000 during the year on landscaping for its new building. For accounting purposes this was treated as an asset and Line expensed one-third (1/3) of the balance in 2019 deducted in Other Expenses.
2. Selling and Administrative Expenses include $20,000 in business meals and entertainment.
3. Other Expenses include contributions to registered charities of $1,000.
4. Other Expenses includes bond premium amortization of $3,000.
5. Selling and Administrative Costs include membership fees for several employees in a local golf and country club. These fees total $9,060.
6. On January 1, 2019, the Company had the following UCC balances:
Class 1 (4%) $300,000
Class 8 (20%) $175,000
Class 10 (30%) $75,000
The Class 1 balance relates to a single building acquired in 2007 at a cost of $500,000. On March 1, 2019, this building is sold for $545,000 (its net book value at the time was $457,000). This gain is included in the accounting gain. The old building is replaced with a new building acquired at a cost of $623,000 on March 15, 2019. Both the old building and its replacement are located on land that is leased from the local municipality at very favourable rates.
There are no dispositions of Class 8 assets during the year. However, there are acquisitions in the total amount of $126,000.
All of the assets in Class 10 are sold during the year as the Company has decided to lease all of its vehicles in the future. The capital cost of these assets was $93,000 and the proceeds amounted to $79,000. The net book value of these assets was $87,000 and the resulting accounting loss was included in Other Expenses.
7. Other Expenses includes interest on late tax instalments of $1,500.
8. Line Skis Ltd. deducts maximum CCA.
Required:
Determine Line Skis Ltd.’s 2019 minimum Net Income for Tax Purpose. Please show your calculation and indicate why you have excluded some items from your calculations. (16 marks)
CCA Calculation: Please do not use ACCII method and please use the method taught in class.
