Accounting Intermediate Taxation

Review

  1. Polytech Inc. calculated its Net Income for its Dec. 31st, 2019, year-end as follows:

Revenues                                                                                        $1,000,000

Other income                                                                                        100,000            A

Expenses:                                                                                                          

             Cost Of Goods Sold                              ($300,000)                                        B

             Selling And Administrative Costs         ( 150,000)                                        C

             Amortization Expense                            ( 175,000)                                        D

             Other Expenses                                      ( 125,000)           (750,000)            E

Income Before Tax Expense                                                           $350,000

Income Tax Expense:                                                                        (75,000)           

Net Income                                                                                         $275,000

            Other Information:

  1. Other income consists of a capital gain.
  • Cost of Goods Sold includes:

$  15,000   in lower of cost or market adjustment

  • Selling and Administrative Costs includes:

$  30,000   in club memberships for senior management

$    1,000   in interest on late tax installments

  • Polytech Inc. amortizes the following assets:
  • Building, 95% manufacturing use, 5% office use, with an ACB of $1.5 million and a UCC of $1.2 million on Jan. 1, 2019.
  • Warehouse leased in 2014 for a 10-year term with an option for two 5-year renewals.  Leaseholds improvements were made in 2014 for $100,000 and 2016 for $40,000. 
  • Manufacturing equipment (class 8) with a cost of $200,000 and a UCC on Jan. 1st, 2019, of $140,000.  In December the company sold equipment for $500,000 which was originally purchased for $400,000.  Replacement equipment was also purchased in December for $650,000.
  • Other Expenses include:

$    4,000   in 2019 year-end bonuses, paid on July 1st, 2020

$    2,000   in bond amortization

$    4,000   in incorporation costs

  1. Calculate minimum Net Income For Tax Purposes for the year ended Dec. 31, 2019;
  2. End of year tax account balances; and,
  3. Explain adjustments to GAAP income and any amounts that are unadjusted.
Explanation of adjustments and unadjusted amounts.                                  
Calculations and end of or year tax balances                                                        
GAAP Income                                                                                    
  NIFTP  
  • One of Polytech Inc.’s manufacturing facilities burned down in February of 2019.  An insurance settlement of $1.5 million was reached in August 2019.  In October 2019, Polytech commenced construction of a new building which was completed in March 2020 at a cost of $2 million.  The manufacturing facility had an ACB of $1.2 million and UCC of $0.9 million prior to the fire.  Polytech Inc. will utilize the Replacement Property Rules.

Calculate the CCA for the year ended Jan. 31, 2020, and tax balances.

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