Assignment #2: Corporate Income Tax Winter 2018 ACCT 328 I need to solve Part a. which is to convert net income for accounting purposes, into net...

Assignment #2: Corporate Income Tax Winter 2018 ACCT 328

I need to solve Part a. which is to convert net income for accounting purposes, into net income for tax purposes. using the information below.

PART A: Calculate the corporation's minimum net income for the year ended December 31,

2017 under the provisions of Division B of the Income Tax Act. Support your

with calculations and the appropriate references to the Income Tax Act. Be sure

to use the Section 3 format for the calculation of net income for tax purposes.

Storm Inc. has a policy of always taking maximum CCA deduction. Please

show all of your work for the CCA calculations.

Assume all expenses are reasonable in the circumstances.

For the year ending December 31, 2017 , the Income Statement of Storm Inc.,

prepared in accordance with generally accepted accounting principles, is as follows:

Revenues $ 2,307,938

Expenses:

Cost of Goods Sold 232,526

Selling & Administrative Costs 271,385

Depreciation Expense 133,361

Other Income & Expenses 277,233 $ (914,505)

Income Before Tax Expense $ 1,393,434

Income Tax Expense

Current 102,939

Future 34,195 $ (137,134)

Net Income $ 1,256,300

Detailed Information Regarding Above Income Statement:

1 Storm spent 14,037 during the year on landscaping for its new building.

For accounting purposes, this was treated as an asset. The Company will not

amortize this balance as it believes the work as an unlimited life.

2 Selling and Administrative costs include 21,372 in business meals and

entertainment.

3 Other Expenses include contributions to registered charities of 20,261 .

4 Other Expenses includes the following:

‐ Insurance premiums on a life insurance policy for the president $ 6,744

Note: the life insurance policy is required as collateral for a loan

‐ legal fees paid in relation to obtaining capital financing of $ 4,094

5 Selling and Administrative costs include compensation expense for the executive

management team at Storm Inc. Included in compensation expense (in addition to

salary expense) are the following amounts:

‐ Membership fee for a local golf and country club $ 8,036

‐ Bonuses declared on Dec.31, 2017 $ 17,546

* Note: The bonuses were paid on Aug.15 2018

‐ Automobile Allowances for business travel incurred $ 3,395

* Note: The allowance was paid at the rate of $ 2.24 per business kilometer

‐ Storm Inc's contribution to registered pension plans $ 29,787

6 On January 1, 2017 , the Company had the following UCC Balances:

Class 1 ‐ Assets acquired in 2012 $ 363,524

Class 8 196,520

Class 10 470,182

Class 13 29,533

There are no additions or dispositions of Class 1 assets during the year.

There are dispositions of Class 8 assets during the year of 226,000 (Proceeds)

and acquisitions in the total amount of 193,202 . The Class 8 assets that

were sold in the year had an original cost of 187,634 .

The Company has decided to lease of all its trucks and trailers in the future, therefore

all of the assets in Class 10 are sold during the year. The capital cost of these assets was

915,923 and the proceeds of disposition amounted to 360,757 .

The net book value of these assets was 343,781 and the resulting accounting

gain of 16,976 was included in Other Income and Expenses.

The Class 13 balance relates to a single lease that commenced on January 1,

2015 . The lease has an initial term of 8 years, with

two successive options to renew for 2 years each. Expenditures on

this leasehold were 25,646 in 2015 and 8,188

in 2016 . There were no further expenditures in the current year. The

write‐ff of these expenditures for accounting purposes is included in Depreciation

Expense.

Prior to 2017 , all laptops were leased. During the current year, laptops and

computers were purchased for $ 43,281 .

In addition, on July 1, 2017 Storm purchased an Audi R8 V10 for the president of

the corporation costing $ 187,747 .

7 On June 6, 2017 , Storm Inc. acquired an unincorporated business. The purchase

price included 64,116 for goodwill. At the end of the year, the goodwill was

tested for impairment and an impairment loss (for accounting purposes) was recorded

in the amount of $ 16,029 (this is included in Other Income & Expenses on the

Income Statement above).

8 Other Expenses includes interest and late filing penalties for GST returns of $ 351

and on late municipal tax payments of $ 748 .

9 Revenues includes an accounting gain on the sale of vacant land owned by the

corporation. The sale took place on October 30. The vacant land was purchased in January

of the current year and since its purchase has incurred property taxes and interest

expenses of 10,235 (for accounting purposes, these amounts were included in Other

Income & Expenses on the Income Statement above). There was no rental income earned

on the land while it was owned. The land was sold for 170,975 . The land

was purchased originally for 140,371 . The resulting accounting gain of

30,604 was included in Other Income & Expenses on the Income Statement above.

10 Also included in the Revenues balance recorded on the Income Statement are the

following amounts:

Foreign Business Income (before foreign taxes withheld) $ 84,223

Foreign Non‐Business Income (before foreign taxes withheld) 20,517

Eligible Dividends from Taxable Canadian Corp. 38,345

Non‐Eligible Dividends from a wholly‐owned subsidiary 23,082

Canadian Active Business Income 235,800

Canadian Source Interest Income 91,417

11 The corporation has permanent establishments in British Columbia, Ontario and

the United States. Its gross revenues, salaries and wages, and operating profit

values are as follows:

Location Gross Revenue Payroll Gross Profit

Alberta 1,140,517 96,271 1,052,785

Ontario 845,737 126,861 818,833

U.S. 321,684 48,253 203,795

Totals 2,307,938 271,385 2,075,412

12 Storm Inc. has net capital loss carryover balance from 2012 of

$ 78,649 and a non‐capital loss carryover balance from 2013 of

$ 23,629 . Management has indicated that they would like to deduct as much of

these amounts as possible in the current year.

13 Storm Inc. is associated with two other Canadian controlled private corporations.

They have agreed to allow Storm to claim 273,560 of the total annual business

limit.

14 The foreign jurisdiction withheld tax of 4,445 from the foreign business

income and 1,989 from the foreign non‐business income. Assume that

the foreign tax credits for business and non‐business income are equal to the amounts

withheld.