Byrd & Chen-s Canadian Tax Principles,

Chapter 12 Supplementary Self Study Problems The solutions to these SSS Problems can be found at the end of this document. SSS Problem Twelve–1 (Corporate Taxable Income) Fortan Ltd. has normally had a fiscal year that ended on April 30. However, for 2020 and subsequent taxation years, the company has requested and received permission from the CRA to switch its year end to December 31. Its Income Statement, before consideration of income taxes, for the period May 1, 2020, to December 31, 2020, is as follows: Sales (All Within Canada) $465,000 Cost Of Sales ( 267,000) Gross Margin Operating Expenses (Excluding Taxes): $198,000 Wages And Salaries ($73,600) Office Rent ( 17,600) Bad Debt Expense ( 1,800) Promotion Expense ( 3,405) Warranty Reserve ( 4,440) Amortization Expense ( 12,384) Charitable Donations ( 2,160) Foreign Exchange Loss ( 4,080) Reserve For Self-Insurance ( 2,322) Interest Expense ( 1,974) Other Operating Expenses ( 14,400) (138,165) Income Before Taxes $59,835 Other Information: 1. As of May 1, 2020, the undepreciated capital cost of the company’s office furniture was $32,500. During the eight month period ending December 31, 2020, a new conference table and chairs were acquired at a cost of $2,000. There were no dispositions during this period. 2. On May 1, 2020, the company has a non-capital loss carry forward of $10,800. 3. The interest expense relates to a bank loan that was incurred to acquire shares of a Canadian corporation. This investee corporation did not declare any dividends during the year. 4. On September 1, 2020, Fortan Ltd. declared common stock dividends of $7,200. 5. The foreign exchange loss resulted from the purchase of merchandise in Germany. 6. Other than setting up reserves for self-insurance, the company makes no provision for insuring its fixed assets. 7. The bad debt expense includes a loss of $1,000 resulting from the bankruptcy of a major customer. 8. On September 1, 2020, the company purchased a delivery van for $18,000. All other vehicles used by the company are leased.