Jane owns a flower shop located in a mall. She runs it as
a sole-proprietorship
without her husband’s involvement. Jeff and Jared help out every
Saturday at the shop.
Neither receives a salary for their work. Jane pays for their
sporting events and clothing so she
does not feel she should pay them a wage. The income statement
for 2015 and other information
for Jane’s flower shop are below:
Revenues
………………………………………………………………………………
$561,000
Expenses: General and administrative……………………
$411,930
Amortization on fixed assets
………………………………. 28,170 440,100
120,900
Gain on disposal of fixed assets (see details below)
……………………… 79,100
Net income before income
taxes……………………………………………….. 200,000
Provision for income taxes
………………………………………………………. 43,240
Net income after income
taxes………………………………………………….. $156,760
The opening UCC balances as at January 1, 2012 were as
follows:
Class 3
……………………………………………………… $30,000
Class 8
……………………………………………………… 2,000
Class 10
……………………………………………………. 11,000
During 2015, Jane purchased the following depreciable assets for
her business:
Delivery van
………………………………………………………………………………
30,000
Computer equipment & related systems software (October 2015)
……….. 10,000
Computer word processing
software………………………………………………. 6,000
In April 2012, Jane sold her owned business premises (consisting
of land and a Class 1 building)
and moved to a spot in a mall which is currently being leased.
She received
proceeds of $20,000 for the land (original cost of $5,000).
The details of the sale of the former Class 1 building, as well
as the other depreciable assets sold
during 2012, are set out below:
|
proceeds |
Original cost |
Net book value |
|
|
Class 1 building |
125000 |
45000 |
40000 |
|
Delivery van |
4500 |
18000 |
6175 |
During 2012, Jane purchased the client list from a competitor
who was going out of business. She
paid $12,000 for this list.
Jane has the following loss carry-overs from prior years:
• Non-capital loss from 2014 of $17,000,
• Capital loss of $25,000, from the sale of shares that occurred
in 1990.
Jane is a partner in a partnership and owns 10% of the total
units. During 2012, the partnership
earned total income of $25,000. Of this income, 25% was from
taxable capital gains, 50% was
business income and the remaining balance was interest income.
During 2015, Jane and John made the following selected expenditures:
Care for the children:
• food and clothing for Jeff and Jared $ 6,500
• babysitter for half days during 30 weeks of school term
($80 per week) 2,400
• babysitter for full days during 15 weeks of summer
and other vacations ($125 per week) 1,875
• camp for both children, three weeks each ($225 per week)
1350
• Payments made to daughter to babysit so the couple could
go out on date night 750
Part 1 – Required:
1. In EXCEL: Calculate Jane’s net income for tax purposes. Show
supporting computations
whether or not relevant to your final answer. Ignore any GST/
HST tax implications.
2. For items excluded from your calculations, describe why you
excluded them. Give any suggestions you may have that would help reduce their
overall tax payable.
3. Your response should be done in excel, even for the omitted
items. Your calculations should
be done in excel in a way to show the calculations. The marker
should not be required to
click on any cell to see how the calculations were performed.
