Appendix III (continued)
Prepared by Bruce MacDonald
4. Other meals and entertainment, which are included in advertising and promotion, included the following:
• Business lunches and dinners: $9,010
• Tickets to sporting events: $2,870
• Christmas dinner (for all of the company’s employees): $3,790
5. Insurance includes premiums for Bruce’s key person life insurance policy of $12,000.
6. Warranty expense is equal to the cash paid.
7. The company was late in filing its corporate tax return last year and deficient in its instalment payments during the year. Interest and penalties of $690 were charged to the company. These have been expensed on the current-year income statement.
8. The company has a net capital loss carried forward from five years ago in the amount of $4,100 ($8,200 capital loss).
9. During the year, Quality sold its investments for $35,000. Bruce was happy that a profit was made on the original cost of $29,850. The gain of $5,150 was recognized on the financial statements and included as a credit in interest and bank charges. One of the investments paid a capital dividend of $2,000 in the current year. The dividend was also included as a credit to interest and bank charges.
10. All donations made in the year were to registered charitable organizations.
11. Quality incurred $10,000 as a refinancing fee for the term loan.
12. The balances in the refundable dividend tax on hand and capital dividend accounts at the beginning of the year were nil.
13. Quality uses the taxes payable method for recording income tax.
14. Quality is a Canadian-controlled private corporation that is eligible for the small business deduction. The marginal rate for small business income is 14%.
15. The marginal rate for income in excess of the small business deduction is 30%. The rate for aggregate investment income is 50%.
16. The $70,000 recorded as income tax expense represents instalment payments made for this tax year.
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