FMT15 Problem: Taxable Income & Tax Payable - ABC Corporation

FMT15 Problem: Taxable Income & Tax Payable - ABC Corporation

ABC Corporation is a CCPC, and is in the business of manufacturing children's toys. Mr. and

Mrs. ABC are the shareholders and actively manage the business. Over the course of the fiscal

year, the following transactions occurred.

1) During the fiscal period, there was active business income of $550,000. All of such

profits are attributed to the M&P operations of the business.

2) ABC Corporation also owns a building on the other side of town, which they rent out.

Net rent for prior periods were normally much higher, however, this year due to the

deteriorating condition of the building, much more was invested in maintenance and

repairs. Net rental income before CCA was $23,500. The maximum CCA available for

this building for deduction is $60,000.

3) During the course of the year, ABC made a donation of $10,000 to the children's hospital,

while Mr. ABC, on behalf of the company donated $15,000 to the Liberal Party of

Canada.

4) Depreciation expense of $34,000 was deducted.

5) In June ABC disposed of a piece of equipment in Asset Class 12. The net book value of

this asset was $25,000; the asset was sold for proceeds of $15,000. There are four other

assets remaining in this asset class.

6) During the course of the year, ABC received dividends from non-connected Canadian

Corporations of $32,000 and interest of $5,000.

7) In August, ABC disposed of a piece of land that they have owned since incorporation.

The original cost of the land was $12,000 and it sold for $150,000, and had associated

costs of $7,500.

8) Losses Carried Over: (Expiration in Brackets)

Net Capital Losses (n/a) 100,000

Non-Capital Losses (1) 30,000

ABIL (2) 1,500

9) ABC reported Meal and Entertainment expense of $35,000 for the year.

10) The company has a maximum of $55,000 CCA available for deduction (excluding the

CCA for the building)

11) ABC reported Income for Accounting Purposes of $656,000.