TAXX 401v35: Assignment 1 – Solutions
2026-2027 Solution to AP 12-10 (55%)
Canadian Tax Principles Athabasca
University
Solution to AP 12-10 (55%)
Part A - Net Income
The calculation of Kalex’s 2025 net income would be as follows:
Accounting Net Income before Income Tax $2,481,986
Additions, Including Relevant Problem Part:
Current Income Tax Expense $ 325,000
2 Amortization expense 615,000
3 Theft insurance (Note 1) 2,850
5 Prepaid advertising (Note 2) 24,800
6 Charitable donations 17,400
7 Non-deductible meals & entertainment 31,250
[(50%)($62,500)]
8 Life insurance premiums paid on the four 22,000
shareholders
10 Capital renovations to the Toronto building 112,000
12 Penalties paid on late corporate income tax 2,900
instalments
13 Interest on late municipal tax payments (Note 3) Nil
17 Estimated warranty expense reserve 16,275
2024 Doubtful debt reserve 30,900
Non-deductible accounting bad debts reserve (Note 33,750
4)
Recapture on Class 8 (See Note 9) 52,000
Taxable Capital Gain on Vacant Land (Note 7) 50,435
Accrued interest on amounts owing on vacant land 16,500
(Note 5)
Foreign Business Income Tax not adjusted 77,900
Loss on sale of Jennco Shares (Note 6) 116,600
16 Golf Club Membership Fees 19,300 1,566,860
$4,048,846
Deductions:
1 Bond Premium Amortization ($ 8,800)
9 Capital Dividend (Tax Free) (40,000)
2025 doubtful debt reserve (Note 4) (28,800)
Allowable Business Investment Loss (58,300)
(50% of $116,600)
(See note 6)
CCA (Note 9) (1,394,585)
Class 10 Terminal Loss (Note 9) (28,875)
3 Accounting Gain on Vacant Land (Note 7) (290,000)
TAXX401v35_Assignment1_Solutions 1 © Athabasca University, February 2026
, 4 Landscaping Costs (Note 8) (52,200) (1,901,560)
Net Income for 2025 $2,147,286
TAXX401v35_Assignment1_Solutions 2 © Athabasca University, February 2026
2026-2027 Solution to AP 12-10 (55%)
Canadian Tax Principles Athabasca
University
Solution to AP 12-10 (55%)
Part A - Net Income
The calculation of Kalex’s 2025 net income would be as follows:
Accounting Net Income before Income Tax $2,481,986
Additions, Including Relevant Problem Part:
Current Income Tax Expense $ 325,000
2 Amortization expense 615,000
3 Theft insurance (Note 1) 2,850
5 Prepaid advertising (Note 2) 24,800
6 Charitable donations 17,400
7 Non-deductible meals & entertainment 31,250
[(50%)($62,500)]
8 Life insurance premiums paid on the four 22,000
shareholders
10 Capital renovations to the Toronto building 112,000
12 Penalties paid on late corporate income tax 2,900
instalments
13 Interest on late municipal tax payments (Note 3) Nil
17 Estimated warranty expense reserve 16,275
2024 Doubtful debt reserve 30,900
Non-deductible accounting bad debts reserve (Note 33,750
4)
Recapture on Class 8 (See Note 9) 52,000
Taxable Capital Gain on Vacant Land (Note 7) 50,435
Accrued interest on amounts owing on vacant land 16,500
(Note 5)
Foreign Business Income Tax not adjusted 77,900
Loss on sale of Jennco Shares (Note 6) 116,600
16 Golf Club Membership Fees 19,300 1,566,860
$4,048,846
Deductions:
1 Bond Premium Amortization ($ 8,800)
9 Capital Dividend (Tax Free) (40,000)
2025 doubtful debt reserve (Note 4) (28,800)
Allowable Business Investment Loss (58,300)
(50% of $116,600)
(See note 6)
CCA (Note 9) (1,394,585)
Class 10 Terminal Loss (Note 9) (28,875)
3 Accounting Gain on Vacant Land (Note 7) (290,000)
TAXX401v35_Assignment1_Solutions 1 © Athabasca University, February 2026
, 4 Landscaping Costs (Note 8) (52,200) (1,901,560)
Net Income for 2025 $2,147,286
TAXX401v35_Assignment1_Solutions 2 © Athabasca University, February 2026
