Question

STARTING WITH ACCOUNTING NET INCOME, CALCULATE NIFT      (23 MARKS)

West Tech Enterprises Inc. has a taxation year that ends on December 31. For the year ending December 31, 2019, the Company’s accounting statements prepared in accordance with generally accepted accounting principles showed Accounting Net Income of $314,000. The accountant has provided the following other information that was used in the preparation of this Net Income figure:

1.      A total of $99,500 was deducted as income tax expense.

2.      As the Company was late in making its required income tax instalments, it was required to pay interest of $500.

3.      For the year ending December 31, 2019, the Company recorded $93,000 in amortization expense. Maximum available CCA deductions for this period were $107,000. The accountant already calculated the CCA.

4.      The Company’s accounting expenses included a payment of dues in a local golf club of $2,500. The cost of entertaining clients at this club during the year ending December 31, 2019 was $9,600.

5.      For accounting purposes, no allowance for bad debts was established at either the beginning or the end of 2019. The $5,200 bad debt expense that was included in the accounting records reflected only the amounts that were written off during the year. For tax purposes, the Company deducted a reserve of $3,400 for the taxation year ending December 31, 2018. An appropriate reserve for the year ending December 31, 2019 would be $4,200. The company wants to claim the maximum amount for tax regarding bad or doubtful debts.

6.      For accounting purposes, the Company set up an Allowance for Slow-Moving Inventory. The Allowance deducted in accounting net income in the December 31, 2018 year was $123,000, and the Allowance deducted by the Company in the 2019 year was $147,000.

REQUIRED:   Calculate the NIFT (Net Income for Tax Purposes).  DO NOT go any further to calculate Taxable Income, etc.

Answer 1