PERSONAL TAXATION(ACC540NZJ)-WINTER 2022 T1 ASSIGNMENT Due date:-April 14th,2022 Mrs. Wu comes to you for advice in February XXXXXXXXXXLast year 2020, was a year of considerable change and turmoil for...

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PERSONAL TAXATION(ACC540NZJ)-WINTER 2022
T1 ASSIGNMENT
                                    Due date:-April 14th,2022
Mrs. Wu comes to you for advice in Fe
uary XXXXXXXXXXLast year 2020, was a year of considerable change and turmoil for her. Her job in Montreal,Quebec, with X Ltd. was finished because of a reorganization of the Company. She had been with this company since XXXXXXXXXXShe found another job with Y ltd. in Brampton, Ontario, but it required her to move there. She commenced working at this job on January 1st.,2021. Her divorce from her former husband became final in XXXXXXXXXXMrs. Wu who was already a single parent of a nine year old daughter decided to adopt a five year old child locally on May 1st XXXXXXXXXXBy June 2021, after completing her move to her new job, the adoption was finalized. All legal costs related to the adoption totaled $15,400.
Under the terms of the employment agreement with Y Ltd. it was agreed that because she had to sell her house in Montreal to move to Toronto, the employer will re-imburse her on the loss of the sale of the property. She sold the Montreal home for $50,000 less than the cost of the house which was purchased in 1989.
Information on receipts and benefits for 2021 were as follows:
    Salary earned in 2021………………………………………………………………….$188,000
    Bonus………………………………………………………………………………………………30,000
    Profits on sale of cosmetics at home parties…………………………………… 9,700
    Interest on Canadian savings bonds………………………………………………… 3,450
    Dividends from CCPC’s…………………………………………………………………..... 4,000
    Dividends from U.S. Corporations (15% withholding tax)………………… 6,800
    Spousal support receipts pursuant to divorce agreement………………. 18,000
     ($1,000 per month for her support )
    Moving allowance………………………………………………………………………….. 9,000
    Donations to United Way………………………………………………………………. 2,000
Disbursements and withholdings:
    CPP and EI contributions…………………………………………………………………. (3,999)
    Income taxes withheld…………………………………………………………………… (24,000)
    RPP contributions………………………………………………………………………….. (5,500 )
    Union dues……………………………………………………………………………………... 2,000
    Registered retirement savings plan contributions, made on…………… 49,000
     Fe
uary 14th, XXXXXXXXXXearned income was $153,000
     With a P.A. of $5,000). She had unused deduction room of $10,000.
    Tuition fees for nine months full time at a local university……………… 6,000
    Payment on cancellation of a lease for Waterloo apartment……………. 1, 575
    Payment on signing lease for a Montreal apartment………………………….2,000
    Gas and direct expenses incu
ed to move to Toronto………………………… 300
    Trailer rental to move her belongings……………………………………………………. 350
    Cost of shipping remaining of household effects…………………………………. 5,200
    Cost of staying at a hotel ($125) and meals ($55) for one day
     While waiting for her household furniture to be unpacked…………………….. 180
    Payment to babysitter for care of both children after school
     And during school holiday……………………………………………………………………..10,400
    Summer camp for children after school (4 weeks @ $300 per week……...1,200 (each)
    Hockey school for 2 children………............................................. XXXXXXXXXX900 (each)
    Interest on money bo
owed to buy dividend paying stocks……………………. 600
Other Information:-
i.    At the beginning of 2021, Mrs. Wu had 2 rental properties. These properties are expected to have the following operating cash flows associated with them:-
                                Property #1…………….Property #2
    Gross rents received ………………………………………………………..$20,000 …………………$16,000
    Expenses related to earning rental income:-
        Advertising (for tenants)……………………………………… XXXXXXXXXX…………………… 0
        Property taxes………………………………………………………. 1,400……………… XXXXXXXXXX,000
        Utilities (landlord provided)………………………………….. 4,200………………….. 2,800
Property #1 was purchased in 2000 at a cost of $90,000 for both the land and the building. The cost of the land was $25,000 of the total purchase price. The UCC balance in Class #1 for this property was $25,948 at the beginning of 2021.
Property #2 was purchased in 2010 at a total cost of $105,000; the fair market value of the land at the time was $60,000. The U.C.C. balance at January 1st.2021 for this property was $33,139.
In 2021, the local community enacted strict new bylaws on the safety requirements for rental properties.
In order to upgrade the two buildings to the new code the requirements would be $40,000 for property #1 and $60,000 for property #2. As a result Mrs. Wu decided to improve property #1 and paid $40,000 for the improvement. However, she decided to sell property #2 and did so for $248,000. The fair market value of the land was appraised to be $120,000 and the building was $128,000.
ii.    Mrs. Wu’s father was a manufacturer of steel rods. In 2018 he was unable ,due to illness ,to continue to operate the business and he passed title to the business to Mrs. Wu. She employed her best friend Jonathan to manage the business and all the other staff remained in place. This allowed her to continue her own employment in the field in which she was happy. The management staff was paid by salaries.
Below is the income statement for this business for the year ending December 2021-
X Ltd.
Condensed Income Statement
For the year ended December 31st.2021
Sales……………………………………………………………………………………………………………3,824 ,000
Cost of sales................................................................................ XXXXXXXXXX2,878,000)
Gross Profit……………………………………………………………………………………………… XXXXXXXXXX,000
General and administrative expenses……………………………………………………… XXXXXXXXXX,000)
Other………………………………………………………………………………………………………… XXXXXXXXXX,000)
    Income before income taxes……………………………………………………………………… 381,000
    Income tax expense…………………………………………………………………………………… (76,000)    
    Net income………………………………………………………………………………………………… 305,000
Additional information:-
i.    An analysis of the cost of sales account revealed that the inventory is valued at average cost within each of the different styles ca
ied. Since the owner is still learning what has appeal, a “mark down rack” has become a common fixture at the back of the store. The tagged prices of the mark-downs are less that their costs, at December 31st.2021 by $1,400. This difference has not been recorded in the financial statement.
ii.    Cost of goods sold includes a charge of $2,800 to set up an allowance for returns that are subsequently saleable at full retail price. No such allowance was recorded last year-end because the company only discovered that the allowance was necessary this year.
iii.    General and administrative expenses include the following:-
    Contributions to a registered pension plan made monthly for the two key employees, expensed
    By the Corporation’s accountant were as follows:-
                Registered Pension Plan XXXXXXXXXXEmployment Compensation
President and CEO……………………………$42,000………………………………$380,000
Store Manager…………………………………$25,600………………………………. 260,000
The pension n plan is a defined contribution (money purchase)plan. The contributions above were matched by equal contributions made by the employee.
iv.    The Company paid the following amounts to Sun Insurance Limited during the year;-
        Group term life insurance for the four full-time employees………$4,400
        $200,000 term life insurance policy on the president
        Which was included in the “Insurance” expense account………….. 1,800
$6,200
X Company is the beneficiary of the insurance policy on the president. The term life insurance policy on the president was assigned to the bank as collateral for a $500,000 loan from January 1st. through to August 3th XXXXXXXXXXThe loan was repaid on September 1st.2021 in favour of the operating line of credit.
v.    The following selected information was taken from the “Promotions” account:-
        Charitable donations to the United Way………………………………………$6,000
        Political contributions to the local politicians……………………………….. 5,000
        Hockey tickets given to suppliers as Xmas gifts…………………………….. 2,800
        Meals & Entertainment by the owner………………………………………….. 3,000
        Golf green fees incu
ed while entertaining suppliers………………….. 2,800
        Two summer parties and one Xmas party……………………………………. 18,000
vi.    The Company’s “Professional expense” account included the following legal and account fees            Accounting fees for year-end work, and monthly book-keeping…..$20,000
        Legal fees incu
ed to purchase equipment………………………………….. 4,000
         Negotiations for a line of credit at the bank………………………………… 8,000
vii.    In 2019, the company incu
ed legal fees of $2,500 to set up the corporation and $1,000 to issue shares to the president and CEO.
viii.    Other expenses deducted in the financial accounting computation of income include:-
        Depreciation and amortization……………………………………………$350,000
        Interest on the loan and operating line of credit……………… XXXXXXXXXX,500
        Interest on insufficient income tax instalment……………………… XXXXXXXXXX
        Purchase of additional store fixtures bought at a going-out-of-
            Business sale…………………………………………………………… XXXXXXXXXX
        Damages under a
each of contract suit initiated by a
            Supplier…………………………………………………………………… 1,900
ix.    An examination of the fixed asset ledger indicated the following UCC at the beginning of 2021:-
        Building -1(4%)………………………………………………………………….$568,000
        Equipment(Office)-8(20%)………………………………………………… 39,000
        Trucks-10(30%)…………………………………………………………………. 170,000
        Leasehold improvements(Note 1)-Life of lease ……………...……165,000
        Licences……………………………..5 years……………………………………….87,393
        Radio communication equipment(Cl#8-20%)………………………….70928
Addiitional information:-
i.    The Class 13 assets consists of:-
    -Improvements to a lease warehouse costing $100,000 in XXXXXXXXXXThe remaining length of the lease in 2020 was six years with two successive options of four years.
    -Improvements to a leased office space for head office downtown, costing $81,600 in 2021
    The remaining length of the lease was five years with an option to renew for an additional one year.
ii.    The licences were purchased to start on April 22nd.2020;, at a cost of $110,500 and had a life of 5 years.
iii.    The radio communication equipment was installed in 2017.
iv.    The building was the only building the corporation owned.
v..    During 2021, the company had the following capital transactions:-
    Additions:
    Purchased in June a new concrete manufacturing building costing $1,625,000 (including $325,000 for land). The building was put in Cl#1(10%).
Additional expenditures relating to the building:-
    Paved parking lot for employees (Class 17-8%)…………………………………………………..$97,000
    Erected a steel
Answered Same DayApr 12, 2022

Solution

Neha answered on Apr 12 2022
12 Votes
Sheet1
                    Salary
                    $153,000
                    Federal tax deduction
                    ($25,554)
                    Provincial tax deduction
                    ($28,669)
                    EI deduction
                    ($724)
                    Quebec Pension Plan (QPP)
                    ($3,776)
                    Quebec Parental Insurance Plan (QPIP)
                    ($435)
                    Total tax
                    ($59,158)
                    Net pay
                    * $93,842
                    Marginal tax rate
                    48.60%
                    Average tax rate
                    38.70%
Sheet2
        Receipts and benefits
        Salary earned in 2021    188000
        Bonus    30000
        Profits on sale of cosmetics at home parties    9700
        Interest on Canadian savings bonds    3450
        Dividends from CCPC’s    4000
        Dividends from US Corporations (15% withholding tax)    6800
        Spousal support receipts pursuant to divorce agreement    18000
        Moving allowance    9000
        Donations to United Way    2000    270950
        Disbursements and withholdings:
        CPP and EI...
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