The unaudited income statement for Lomas & Sons Limited, a Canadian-controlled private corporation, for its year ended December 31, 2022, shows the following:
Sales $ 795,000 Cost of sales $350,000 General and administrative expenses 225,000 Research and development expenditures 65,000 (640,000) Operating income $ 155,000 Other income 20,000 Net income before taxes $ 175,000 Provision for income taxes: — current $ 27,000 — future 25,000 (52,000) Net income after income taxes $ 123,000 The information in the following notes has already been reflected in the above income statement. (1) Payment made by company on April 1, 2023, to a defined contribution (money $ 7,000
purchase) registered pension plan for the president of the company in respect of current employment service, allocated to 2022 expenses by the company’s accountant; in addition, the president had $7,500 withheld from his compensation of $74,000 for the RPP
(2) Increase in warranty reserve on company’s product (net of expense incurred; 16,000 based on self-insurance warranty program) (3) Amortization expense recorded in the financial statements 30,000 (4) Landscaping costs re: factory premises 2,500 (5) Interest on bank loan obtained for the purpose of purchasing common shares in 6,300 Advanco Ltd., a dividend-paying Canadian corporation (6) Legal costs of arranging an agreement among shareholders 8,500 (7) Legal and accounting fees related to issue of shares 12,700 (8) Interest on municipal real estate taxes paid late in error 1,000 (9) Golf club membership fees 2,200 (10) Donation to United Way 3,000 (11) Meals and entertainment for clients 4,000 (12) Appraisal fees to determine selling price of fixed assets 6,200 (13) Premium on term insurance on life of president with the corporation as 2,800 beneficiary; policy was not required to be assigned as collateral for corporate borrowing from the bank (14) Management bonuses ($20,000 of the bonuses expensed in 2022, and shown 40,000 as “Bonus Payable” on the Balance Sheet as at December 31, 2022, has not been paid at the time of filing the corporate tax return on June 30, 2023) (15) Amortization of bond discount on bonds issued in 2017 3,400 (16) Interest and penalties on income tax assessments, expensed for accounting 1,250 purposes (17) Items included in the financial accounting statements in arriving at the net 26,800 profit:
Amount paid by an insurance company on its business interruption insurance to compensate for loss of profits when company was closed down for a month during the year because of a fire Dividends received Volume rebates and discounts on purchases
1,700
16,000
Your manager has asked you to compute the income from business or property for tax purposes, ignoring tax deductions in respect of depreciable capital or eligible capital property for Lomas and Sons Limited in respect of its 2022 fiscal year. In addition, she wants you to comment on all items not included in your derivation of income from business or property.
