X Ltd is Canadian controlled private corporation operating
X Ltd is Canadian controlled private corporation operating a… X Ltd is Canadian controlled private corporation operating a franchised retail and mail order business in Toronto, Ontario. Jeffrey Alexander, the Company’s president owns 100% of the corporation’s share capital. The following information is taken from the financial statements for the year ended December 31st, 2021:-X Ltd.Income StatementFor Year Ended December 31st.2021Sales…………………………………………………………………………………………………………………$8,325,000 Cost of goods sold…………………………………………………………………………………(7,002,500) Gross Profit…………………………………………………………………………………………….1,322,500 Selling expense……………………………………………$175,500 General &Administrative expenses………………. 995,000…………………1,170,500 Net income before taxes………………………………………………………………………….. 152,000 Gain on disposal of fixe assets………………………………………………………………….. 56,000 Income taxes……………………………………………………………………………………………….. 26,000 Net income after taxes………………………………………………………………………………… 182,000Except for selling expenses, all other expenses were classified as general and administrative expenses.You have been hired to prepare the reconciliation statement from business net income to business taxable income and is provided with the following additional items relating to the business:-Additional Information:i. The cost of goods sold includes a general reserve in inventory of $50,000 calculated as a 5% of the closing inventory value to account for an anticipated introduction of a new product by a competitor. The Company recorded an inventory reserve in its year ended 2020 of $35,000.ii. During the year, a warehouse worker managed to remove inventory worth $4,000 during the night shift.iii. Included in the sales for the year is a deposit of $5,000 received from a customer for goods to be delivered next year.iv. Legal fees include:- Preparing annual corporate minutes…………………………………………………$300 Incorporation fees…………………………………………………………………………………..1,500 Preparing and registering a mortgage item………………………………………………1,000 Negotiating a franchise licence………………………………………………………………….2,000v. The Company provides insurance for employees and paid the following amouts to the American Life Insurance Company during the year:- -$500,000 life insurance policy on the life of the presiden…………………………………….$3,600 -$250,000 life insurance policy n the life of the Vice-President, Marketing…………….$2,000 -Group term life insurance of the employees………………………………………………………..$25,000 The Company is the beneficiary of the policies on the president and vice-president. On June 1st.2021, the Company renegotiated its bank debt, and due to the ever increasing responsibilities of the president, the bank required the insurance policy on the life of the president as part of the collateral for the loan. Also included in the expenses are contributions for certain employees to the Company’s registered pension plan. The pension plan is a defined contribution plan. The Company matches the employees’ contributions on a dollar for dollar basis. Registered Pension Plan…………..Employment CompensationPresident………………………………………………………..$10,000…………………………………………$100,000Vice-President ……………………………………………….. 7,000…………………………………………$ 75,000Accountant……………………………………………………… 3,000…………………………………………$ 50,000vi. Repairs and Maintenance Expense include:- Paving the parking lot………………………………………………………………………….$8,000 Cleaning and supplies………………………………………………………………………….. 1,400 Replacing a broken window…………………………………………………………………. 1,000 vii. Advertising expense include: Cost of making a TV commercial…………………………………………………………..$25,000 Travel cost for the president and his wife…………………………………………….. 3,000 (the wife’s expense was $1,500) Charitable donations………………………………………………………………………………… 2,000 Meals and beverages for entertaining suppliers……………………………………….. 1,800 Cost of a pleasure boat to entertain suppliers ………………………………………….. 2,600 Television advertising aimed at the Vancouver market: Vancouver station…………………………………………………………………………..11,000 Buffalo(USA)…………………………………………………………………………………… 6,000viii. A contingent reserve for possible defective products of $5,000 was recorded as a charge against the cost of goods sold. During the year $3,000 of the products were returned.ix. On May 31st 2021, the Company invested $40,000 in a one year bank certificate earning annual interest of 7%.x. Capital cost allowance for tax purposes was correctly calculated to be $22,000.xi. Salary expense includes the following:- Wages to employees………………………………………………………………………………….$130,000 Year-end bonus to President……………………………………………………………………… 11,000 ($5,000 was paid on November 30th.2020 and $6,000 payable on June 30th,2021) Automobile allowance paid to an employee…………………………………………….. 5,100xii. The gain on the sale of the fixed asset consists of the accounting gain on the sale of one of the business’s warehouse. The warehouse has been owned since 2017. The Undepreciated Capital Cost of the Class #3 asset at the beginning of 2021 was $55,575. The warehouse was purchased for $60,000 and sold for $16,000.xiii. During the year, the Company borrowed money to buy new equipment. The interest expense related to this was $21,000 Prepare the 2021 business income reconciliation from accounting net income to taxable income, indicating any omissions in your answer Business Accounting ACF ACC540
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