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For the year ending December 31, 2017, the Income Statement of Markham Ltd., prepared in accordance with generally accepted accounting principles, is...
For the year ending December 31, 2017, the Income Statement of Markham Ltd., prepared in accordance with generally accepted accounting principles, is as follows:
Revenues $973,000
Expenses:
Cost Of Goods Sold ($272,000)
Selling And Administrative Costs (132,000)
Amortization Expense (156,000)
Other Expenses (137,000) (697,000)
Income Before Tax Expense $276,000
Income Tax Expense:
Current ($ 97,000)
Future (32,000) (129,000)
Net Income $147,000
Other Information:
1. The Company spent $6,000 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 has an unlimited life.
2. Selling And Administrative Costs include $15,000 in business meals and entertainment.
3. Other Expenses include contributions to registered charities of $3,700.
4. As the Company expects to issue more shares during 2018, it made a number of amendments to its articles of incorporation in 2017 and included the legal costs in Other Expenses. These costs totalled $6,000.
5. During 2016, Markham Ltd. acquired a competing business at a price that included goodwill of $70,000. For accounting purposes, there is no impairment or write-down of the goodwill purchased in either year.
6. Other Expenses includes bond discount amortization of $2,500.
7. Selling And Administrative Costs include membership fees for several employees in a local golf and country club. These fees total $3,400.
8. Other Expenses includes interest on late income tax instalments of $500 and on late municipal tax payments of $275.
9. On January 1, 2017, the Company had the following UCC balances:
Class 1 $400,000
Class 8 575,000
Class 10 45,000
Class 13 68,000
The Class 1 balance relates to a single building acquired in 2000 at a cost of $550,000. It is estimated that the value of the land at this time was $50,000. On February 1, 2017, this building is sold for $612,000. It is estimated that the value of the land is unchanged at $50,000. In the accounting records, this real property was carried at $507,000, $457,000 for the building and $50,000 for the land. The resulting gain on the building is included in the accounting revenues.
The old building is replaced on February 15, 2017 with a new building acquired at a cost of $683,000 of which $60,000 is allocated to land. The Company chose not to put the new building into a separate Class 1 so it does not qualify for the 6 percent CCA rate. No elections are made with respect to the replacement of the building.
There are no dispositions of Class 8 assets during the year. However, there are acquisitions in the total amount of $126,000.
As the Company has decided to lease all of its vehicles in the future, all of the assets in Class 10 are sold during the year. The capital cost of these assets was $93,000 and the proceeds of disposition amounted to $37,000. The net book value of these assets was $52,000 and the resulting accounting loss of $15,000 was included in Other Expenses.
The Class 13 balance relates to a single lease that commenced on January 1, 2015. The lease has an initial term of seven years, with two successive options to renew for three years each. Expenditures on this leasehold were $50,000 in 2015 and $27,000 in 2016. There were no further expenditures in 2017. The write-off of these expenditures for accounting purposes is included in Amortization Expense.
10. Markham Ltd. deducts maximum CCA.
Required:
Based on the foregoing information, Compute the net income for tax purposes for Markham
