Reference no: EM132156515
Ques 1
The following condensed income statement for accounting purposes is for IBM Co. Ltd., a Canadian-controlled private corporation, for its fiscal year ended December 31, 2018. IBM Co. Ltd. was incorporated in 1990 and has continued in the same retail business since that time.
IBM Co. Ltd.
Income Statement
For the year ended December 31, 2018
Sales $600,000
Cost of sales - see note (1) $365,000
Administrative and selling expenses - see note (2) 110,000 475,000
125,000
Other income and extraordinary expense - see note (3) 225,000
Net income before income taxes 350,000
Provision for income taxes 85,000
Net income after income taxes $265,000
Additional and Supplementary Information
Note (1) Cost of Sales
Inventory Dec. 31, 2017- net of a reserve for potential decline in
market prices of $10,000 $100,000
Net purchases 400,000
500,000
Inventory Dec. 31, 2018 $150,000
Less: a reserve for a potential
decline in market prices 15,000 135,000
$365,000
Note (2) Administrative and selling expenses- selected amounts only
A. Included in the advertising account were the following amounts:
(i) advertising in two upper New York State newspapers for mail order purposes from the USA 1,500
(ii) uniforms for a local girl's baseball team 400
B. Included in the financial costs account were the following selected amounts:
(i) purchase of customer list from a reliable source to solicit sales 3,000
(ii) cost of issuing new share capital 750
Note (3) Other income and extraordinary expenses - selected amounts only
A. The company sold the following capital propertyduring 2018:
Book
Cost Value Proceeds
Securities $ 5,000 $ 5,000 $ 3,000
Land* 50,000 25,000 135,000
Building* 102,500 30,000 175,000
Truck 8,000 500 200
* The land and building were sold to a developer who offered identical leased space at a very reasonable price. The lease was to have a life of three years with two successive five-year options to renew. The building and truck were the only assets in their respective tax classes.
Note (4) Other Information
A. The company had the following balances in selected tax accounts as at January 1, 2018:
Undepreciated capital cost - class 1 $80,000
- class 8 7,500
- class 10 750
B. During the year, the company acquired the following capital property:
(i) On June 1, 2018, an exclusive licence to market a line of Japanese products for five years 5,000
(ii) On September 30, 2018, additional merchandise display cases 10,000
(iii) On November 1, 2018, paid contractor for leasehold improvements on the land and building which was leased above 30,000
C. The net income above reflects a charge for depreciation for fixed assets of $9,650. The company wishes to claim the maximumcapital cost allowance.
Prepare a reconciliation between accounting net income after taxes and income for tax purposes supported by necessary computations.