Question

Question one (12 marks) Fortan Ltd. has normally had a fiscal year that ended on April 30. However, for 2018 and subsequent taxation years, the Company has requested and received permission from the CRA to switch its year end to December 31, Its Income Statement, before consideration of income taxes, for the period May 1, 2018 to December 31, 2018 is as follows Sales (All Within Canada) Cost of Sales Gross Margin Operating Expenses (Excluding Taxes): Wages and Salaries Office Rent Bad Debt Expense Promotion Expense Warranty Reserve Amortization Expense Charitable Donations Foreign Exchange Loss Reserve for Self-Insurance Interest Expense Other Operating Expenses Income Before Taxes $465,000 267,000 198,000 73,600 17,600 1,800 3,405 4,440 12,384 2,160 4,080 2,322 1,974 14,400 138,165 59,835 Other Information: 1. As of May 1, 2018, the undepreciated capital cost of the Company's office furniture was 32,500. During the eight-month period ending December 31, 2018, a new conference table and chairs were acquired at a cost of $2,000. There were no dispositions during this period. On May 1, 2018, the Company has a non-capital loss carry forward of $10,800, The Interest Expense relates to a bank loan that was incurred to acquire shares of a Canadian corporation. This investee corporation did not declare any dividends during the year On September 1, 2018, Fortan Ltd. declared common stock dividends of $7,200. The Foreign Exchange Loss resulted from the purchase of merchandise in Germany. Other than setting up reserves for self-insurance, the Company makes no provision for insuring its fixed assets 2. 3. 4. 5. 6. BUSI 4005 Taxation II-Winter 2019 Section B Assignment one 7. The Bad Debt Expense includes a loss of $1,000 resulting from the bankruptcy of a major 8. On September 1, 2018, the Company purchased a delivery van for $18,000. All other 9. Promotion Expense includes a golf club membership fee of $1,080 and $1,505 in airfare customer vehicles used by the Company are leased. and accommodation that was incurred by the sales manager in attending a sales convention in Denver. The golf club is used exclusively for entertaining clients. The remaining balance in the Promotion Expense account of $820 is the total reimbursement paid to the president of the Company for amounts spent on meals and refreshments while entertaining clients at the club. 10. This is the first year that the Company has established a warranty reserve. Required: Calculate the minimum Net Income For Tax Purposes and Taxable Income for Fortan Ltd. for the taxatio n year ending December 31, 2018.

Answer 1