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Homework answers / question archive / The Income Statement that has been prepared by Margo Ltd's accountant for the year ending December 31, 2020, is as follows: $925,000 (717,000) $208,000 Sales Revenue Cost Of Goods Sold (Note 1) Gross Profit Operating Expenses: Salaries And Wages Rents Property Taxes (Note 2) Amortization Expense Write-Down Of Goodwill (Note 3) Charitable Donations Legal Fees (Note 4) Bad Debt Expense (Note 5) Warranty Provision (Note 6) Social Club Membership Fees Other Operating Expenses Operating Income Other Revenues (Expenses): Gain On Sale Of Investments (Note 7) Interest Revenue Interest On Late Income Tax Instalments Investment Counsellor Fees Foreign Interest Income (Note 8) Dividends From Taxable Canadian Corporations Income Before Taxes ($40,200) ( 22,200) (8,800) ( 35,600) (1,700) ( 19,800) (2,220) ( 7,100) (5,500) (7,210) ( 39,870) (190,200) $ 17,800 $ 9,500 2,110 (1,020) ( 500) 1,530 3,000 14,620 $ 32,420 Notes And Other Information: 1
The Income Statement that has been prepared by Margo Ltd's accountant for the year ending December 31, 2020, is as follows: $925,000 (717,000) $208,000 Sales Revenue Cost Of Goods Sold (Note 1) Gross Profit Operating Expenses: Salaries And Wages Rents Property Taxes (Note 2) Amortization Expense Write-Down Of Goodwill (Note 3) Charitable Donations Legal Fees (Note 4) Bad Debt Expense (Note 5) Warranty Provision (Note 6) Social Club Membership Fees Other Operating Expenses Operating Income Other Revenues (Expenses): Gain On Sale Of Investments (Note 7) Interest Revenue Interest On Late Income Tax Instalments Investment Counsellor Fees Foreign Interest Income (Note 8) Dividends From Taxable Canadian Corporations Income Before Taxes ($40,200) ( 22,200) (8,800) ( 35,600) (1,700) ( 19,800) (2,220) ( 7,100) (5,500) (7,210) ( 39,870) (190,200) $ 17,800 $ 9,500 2,110 (1,020) ( 500) 1,530 3,000 14,620 $ 32,420 Notes And Other Information: 1. The calculation of Cost Of Goods Sold was based on an opening inventory of $225,000 and a closing inventory of $198,600. In addition, the closing inventory was reduced by $15,000 for a reserve for future declines in value. This is the first year the company has used an inventory reserve. 2. Property Taxes include $1,200 for tax paid on vacant land. The company has held this land for five years in anticipation of relocating its head office. 3. As the result of a business combination on January 15, 2020, Margo Ltd. recorded $34,000 in goodwill. As of December 31, 2020, this goodwill was found to be impaired and a good- will impairment loss of $1,700 was recorded. 4. The maximum CCA for the current year is $79,785. This includes the appropriate write-off of the goodwill described in Item 3. 5. The legal fees are made up of $1,200 paid to appeal an income tax assessment and $1,020 paid for general corporate matters. 1 j L 6. The company bases its accounting Bad Debt Expense on the values used for tax purposes. 7. This is the first year that the company has deducted a provision for estimated warranties. 8. The gain on the sale of investments involved marketable securities with a cost of $21,000. The securities were sold for $30,500. 9. The gross foreign interest income of $1,800 was received net of $270 in foreign tax withholdings. Required: Determine the minimum Net Income For Tax Purposes and Taxable income of Margo Ltd., for the year ending December 31, 2020.
Solution :
1) Under the cost of the goods sold, add a reserve of 15,000
2) Tax deduction cases on the basis of tax on the additional information provided: -
1 Property tax paid on vacant land can be deducted if the goods are manufactured or capitalized and added to your property tax base, which will reduce the profit on the sale if it is retained for income generation purposes.
3) Deduction of goods allowed after tax, impairment is recognized as a loss in the income statement and goodwill. And held in Spain. (Does not exceed the value of the book as a whole)
4) Under tax law, a company cannot record impairment losses until the property is actually canceled. Tax law will not allow a company to deduct SE losses until it is physically closed or the assets are sold.
Under the CCA (Capital Expenditure Allowance) under which a company in Canada can claim depreciation costs in respect of the calculation of taxable income under the Income Tax Act. The allowable deduction for CCA means you can claim any amount up to a maximum of one year.
5) Legal fees are tax deductible if commissions are incurred in the business. Legal costs related to personal matters are not normally deductible. This includes solicitor's fees, court fees and similar costs if these costs are incurred in producing or collecting taxable income.
