Jack White is the sole shareholder of Whitecap Enterprises Ltd., a small retail shop selling widgets. The shop has been in operation for a number of years. Jack provides you with the Statement of Income for the company for the current year ended December 31:
WHITECAP ENTERPRISES LTD |
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STATEMENT OF INCOME |
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SALES |
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| $900,000 |
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COST OF SALES: |
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OPENING INVENTORY |
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| $150,000 |
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PURCHASES |
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| 350,000 |
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| 500,000 |
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CLOSING INVENTORY |
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| 100,000 | 400,000 |
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GROSS PROFIT |
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| 500,000 |
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EXPENSES: |
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Accounting & Legal |
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| 14,000 |
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Advertising & promotion (Note 1) |
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| 15,000 |
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Depreciation (Note 2) |
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| 36,000 |
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Automobile expenses |
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| 7,000 |
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Bad debts |
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| 14,000 |
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Insurance (Note 3) |
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| 8,000 |
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Interest |
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| 30,000 |
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Office expenses |
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| 12,000 |
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Rent |
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| 36,000 |
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Wages & Benefits (Note 4) |
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| 118,000 | 290,000 |
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NET INCOME FOR THE YEAR |
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| $210,000 |
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NOTES TO THE ABOVE STATEMENT OF INCOME:
- Advertising and promotion include “Meals and Entertainment” costs in the amount of $10,000.
- Amortization is calculated on a straight line basis. The method used for calculation of amortization is reasonable per generally accepted accounting principles.
- Insurance includes life insurance premiums for Jack White in the amount of $3,000. This insurance is required as collateral for the business bank loan.
- Wages and benefits include the club dues/membership fees paid to the Royal Oak Club in the amount of $6,000. The club dues are paid for the five managers who take clients to the Royal Oak Club on a regular basis for business purposes.
- Carry-forward information from Whitecap Enterprise’s prior year tax return:
The Undepreciated Capital Cost (UCC):
Class 8 (Office & General Equipment) = $ 80,000
Class 10 (Automotive Equipment) = $ 50,000
Class 14.1 (Unlimited Life Intangibles) = $10,000
REQUIRED:
- Calculate the NET INCOME FOR TAX PURPOSES for the corporation for the current fiscal year.
