Norton Forms Excel Problem (dont have the excel form)
Norton Forms is a Canadian controlled private corporationspecializing in designing and printing custom business forms. It isowned by Viola Norton. For the taxation year ended December 31,2018, Ms. Norton 's daughter, Linda, who works in the business, hascalculated a Net Income for Norton Forms of $576,183. Incalculating this figure, Linda used generally accepted accountingprinciples.
Linda has produced the following Income Statement for the yearended December 31, 2018:
Norton Forms Inc.
Income Statement?
Year ending December 31, 2018
Sales---$$ 7,578,903
Cost of Goods Sold ---$5,468,752
Gross Profit ---$2,110,151
Expenses
General and Admin ---$852,000
Amortization Expense ---$550,000
Interest ---$8,500-------------- Total $1,410,500
Operating Income -------------$699,651
Other Income:
Loss on Disposal of Intangible Assets ---$ (17,000)
Interest Income?---$110,532
Income before income taxes ---$793,183
Income Taxes
Current ---$182,000
Future---$ 35,000 -----------Total $217,000
Net Income ------------------ Total $576,183
During your review of Linda's work and last year's tax returnfor the corporation, you have made the following notes:
1. In theaccounting records, the Allowance for Doubtful Accounts was $25,000at December 31, 2018, and $20,000 at December 31, 2017.
During 2018, the company had actual write-offs of $11,750. As aresult, the accounting Bad Debt Expense was $16,750. This amount isincluded in General and Admin expenses on the Income statement.
2. A reviewof the listing of receivables (for tax purposes), indicates thatthe actual items that may be uncollectible total $15,000 atDecember 31, 2018. In 2017, the company deducted a reserve for baddebits of $13,000 for tax purposes.
3. Generaland Admin Expenses include:
a) Donations to registeredcharities $27,000
b) Accrued Bonuses - Accrued Sept 1, 2018. Paid June 15,2019 $78,000
Meals and entertainment costs:
c) $1,000 per month for premium membership at golf club forViola $12,000
d) $200 per month for membership at golf club forsalespeople $2,400
e) Meals while entertaining clients $32,000
f) Food costs for Viola's personal chef for her meals athome $5,000
g) Annual summer BBQ for all staff $6,000
h) Sponsorship of local baseball team where company name isprominently displayed on front of jersey $15,000
i) Advertising in a US trade magazine directed at USclients $ 100,000
j) New software purchased October 1, 2018. ($13,000 forapplications and $25,000 for systems) $38,000
k) Accounting and legal fees for amended to the articles ofincorporation $6,000
l) Costs to attend annual convention of finger knitters inThailand. While at the convention, Viola was sure to hand outbusiness cards and talk to other attendees about her business withthe intention of claiming the convention as a businessexpense. $17,000
4. Interest expense consists of the following:
a) Interest expense - operations $ 5,000
b) Penalty and interest for late and insufficient instalmentpayments $ 2,000
c) Interest on late payment of municipal property taxes$1,500
5. Travel costs (included in general and admin expenses) includeboth air travel and travel reimbursement to employees for businesstravel. The company policy is to reimburse employees $0.58 perkilometer for the business use of their automobiles. During theyear, seven employees each drove 4,000 on employment relatedactivities and one employee drove 7,500 kilometers. None of thekilometer based allowances are required to be included in theincome of the employees.
6. Maximum CCA has always been taken on all assets. Theundepreciated capital cost balances at January 1, 2018 were asfollows:
Class 1 (4%)------$650,000
Class 8-----------$95,000
Class 10.1------$17,850
Class 14-----$68,000
Class 14.1-----$18,098
Class 53-----$135,000
Class 44-----$65,000
7. There was a loss on disposal of a limited life license toproduce copyrighted materials for a major distributor. This licenseoriginally cost the company $95,000, and it was sold for $63,000 in2018. The book value of the license at the time of sale was$80,000. When the license was sold, it was the only asset in itsCCA class. The loss was claimed as a loss on disposal of intangibleassets on the Income Statement.
8- Purchases and sales of equipment and other capital assetsmade during 2018 were as follows. (Note: any items discussed inother sections are included in this list as well)
A)The company purchased land and constructed a new building onit during the year. The building was used 95% for manufacturing andprocessing. The cost of the land was $350,000, and the buildingcost $475,000 to construct.
B)The company purchased a new set of furniture for the receptionarea for $1,200.
C)Some outdated desks used by the finance department with a costof $5,000 were sold for proceeds of $3,500.
D)Landscaping of grounds around the new building cost $35,000.This amount was capitalized for accounting purposes.
E)A company car for use by the president of the company waspurchased for $90,000. This car replaced the only other existingcompany car, which was purchased in 2013 for $95,000. The old carwas sold for $60,000.
F)A fence around the new building cost $52,000.
G)New software was purchased: $13,000 for Applications and$25,000 for Systems.
9- The company sold some shares that had been purchased severalyears ago. The capital gain on these shares was $152,708. Lindadidn't know how to account for this, so she credited the entireamount to retained earnings.
Required:
Determine Norton Forms' minimum Net Income for Tax Purposes forthe year ending December 31, 2018. Ignore GST/HST/PSTimplications.
Using Excel spreadsheet, indicate your rationale for thetreatment of all information given. (dont have the excel, dont knowhow to submit)
