Reference no: EM132894640
Question - ABC Inc. has just completed their December 31, 2020 year end. Each of the items below were included in the calculation of Net Income for Accounting Purposes, calculated to be $12,850,000 by the company's accountant using GAAP.
Instructions - For each "question", provide the effect on the reconciliation of Net Income for Accounting Purposes to minimum Net Business Income/Loss for Tax Purposes.
-Additions to Net Income for Accounting Purposes should be entered in the box as a positive number.
-Deductions from Net Income for Accounting Purposes should be entered in the box as a negative number.
-If the item would have no effect on the reconciliation, enter the number 0 in the box.
-The company spent $26,000 on advertising on a US TV station. The ad was meant to attract American customers to use ABC's online offerings.
-At the beginning of 2020, the Company had a separate Class 1 UCC balance $2,842,000 for a factory that they own. This building has been depreciated using the 10% rate for Manufacturing and Processing Buildings. During 2020, the factory is sold for $4,821,000. The original capital cost of the building was $4,111,000. Please note that the land value has already been removed from all appropriate amounts. Ignore any accounting gains that would have resulted from the sale of the factory.
-The Company has a balance in Class 13 that relates to a single lease that commenced on January 1, 2018. The lease's initial term was 6 years, with two successive options to renew for 3 years each. Expenditures on this leasehold were $85,000 in 2018. There have not been any further expenditures. The write-off of these expenditures for accounting purposes is included in Amortization Expense.
-During 2020, ABC Inc. acquired a competing business at a price that included goodwill of $1,041,000. For accounting purposes, there has been no impairment or write-down of the goodwill since its purchase.
-Management bonuses in the amount of $2,226,000 have been expensed. These bonuses will be paid out in the first 30 days of 2021.
-The Company spent $485,000 during the year on landscaping for its new building. For accounting purposes this was treated as an asset and was amortized accordingly.
-For accounting purposes, no allowance for bad debts was established at either the beginning or the end of 2020. The company did deduct Bad Debt Expense in the amount of $177,000 which was the total of actual bad debt write-offs for the year. For tax purposes, the Company deducted a reserve of $1,564,000 for the taxation year ending December 31, 2019. An appropriate reserve for the year ending December 31, 2020 would be $1,923,000.
-The company paid $4,000 in appraisal fees as required by their insurance company.
-The Company has a Class 8 balance of $139,000 at the beginning of 2020. The Company disposed of all remainng assets in Class 8 during the renovation of the office building. The capital cost of these assets was $384,000 and the proceeds of disposition amounted to $103,000. Ignore any accounting loss that would have resulted from this transaction.
-Business Meals and Entertainment were expensed in the amount of $19,000.
-Several years ago, the Company purchased a Mercedes Benz for $60,000 that is used exclusively for business use. The car is in a separate Class 10.1. On January 1, 2020 the UCC balance is $25,000. On August 1, 2020 the car was sold for $31,000. Ignore any accounting loss that would result from this transaction.
-Income Tax Expense for accounting purposes was calculated to be $1,422,000.
-The Company has a separate Class 1 balance of $1,741,000 at the beginning of 2020 relating to a single office building that was purchased in a prior year for $5,269,000. During the year, the company renovated the building substantially for a cost of $521,000. This building is eligible for the enhanced Class 1 rate of 6%.
-ABC deducted Amortization Expense in the amount of $366,000.