70.2K

Verified Solution

Link Copied!

Mr$.$ Baker and Mr$.$ Cain are members of a partnership that provides accounting services. The$$ partnership's income statement for the fiscal period ending December$31,2023,$ is provided.

Partnership Income Statement

Baker and Cain

Partnership Income Statement

Fiscal Period Ending December $31,2023$

Fees received in cash

$$404,000$

Capital Gains on Temporary Holdings of Canadian Securities

$13,600$

Eligible Dividends received from Canadian corporations

$49,000$

Total Revenues

$$466,600$

Less Expenses:

Salaries and Wages

$$(196,500)$

Rent on Office Space

$(19,000)$

Interest on Bank Loans

$(5,800)$

Amortization$$Office Furniture and Equipment

$(12,900)$

General Office Expenses

$(28,600)$

Charitable Donations

$(7,400)$

Convention Registration Fees

$(3,300)$

Total Expenses

$(273,500)$

Net accounting income

$$193,100$

Other information

$1.$

The partnership agreement provides that all income and losses are to be shared equally.

$2.$

The salaries and wages reported on the income statement include a payment of $ $44$ comma $200$ to each of the two partners. The convention fees were for the two partners to attend the annual CPA conference. This was the only convention attended in $2023.$

$3.$

Both partners use their personal automobiles for business purposes and pay their own operating expenses. Mr$.$ Cain$\text{'}$s automobile cost $ $24$ comma $300,$and$,$ at the beginning of $2023,$ it had a UCC of $ $13$ comma $100.$ His operating expenses for the year were $ $3$ comma $800$ for a total of $45$ comma $000$ kilometres driven. Only$25\%$ of the kilometres driven were for personal use.

$4.$

At the beginning of the current fiscal$$ period, the partnership had fees receivable from clients of $ $27$ comma $200.$ At the end of the$$ year, the corresponding balance was $ $55$ comma $600.$ The closing receivables have not been included in the determination of the$$ partnership's net income.

$5.$

At the beginning of the$$ year, the UCC of the office furniture was $ $26$ comma $600.$ In $2023,$ computer equipment was purchased for $ $8$ comma $600.$ Prior to this$$ time, all computer equipment had been leased.

$6.$

The partnership makes regular annual contributions of $ $7$ comma $400$ to a registered charity.

$7.$

Assume that neither partner is subject to the highest federal income tax rate of$33\%.$

Required

Calculate the minimum net income for Mr$.$ Cain for $2023.$ Include in the calculation Mr$.$ Cain$\text{'}$s share of business income.$$ Also, indicate other partnership amounts that would be allocated to Mr$.$ Cain as well as any deductions or tax credits that can be used to reduce federal income tax payable that result from partnership allocations. Ignore$$ GST$/$HST and PST considerations and immediate expensing.

Start by working on the business income of the partnership. In this$$ step, calculate the Class $50$ CCA. $($Round your answer to the nearest whole$$ dollar.$)$

Computer equipment purchased

$\backslash$times

Class $50$ CCA rate

$\backslash$times

AccII rate

$=$

Class $50$ CCA

$\backslash$times

$\backslash$times

$=$

Part $2$

$$Next$,$ calculate the business income of the partnership. $($Round your answers to the nearest whole$$ dollar.$)$

Fees received in cash

Additions:

Partners' salaries

Amortization

Charitable donations

Closing accounts receivable

Total additions

Deductions:

Opening accounts receivable

Capital gains on securities

Taxable dividends received

CCA

Class $8$

Class $50$

Total deductions

Business income

Part $3$

$$Now$,$ work on finding the addition to Mr$.$ Cain$\text{'}$s net income. In this$$ step, calculate the CCA of the automobile. $($Round your answer to the nearest whole$$ dollar.$)$

UCC of automobile, beginning of $2023$

$\backslash$times

CCA rate of automobile

$\backslash$times

Percentage of kilometres driven for business

$=$

CCA of automobile

$\backslash$times

$\backslash$times

$=$

Part $4$

$$Now$,$ find the addition to Mr$.$ Cain$\text{'}$s net income. $($Round your answer to the nearest whole$$ dollar.$)$

Partnership business income

Mr$.$ Cain's share

$50\%$

Mr$.$ Cain's share of partnership business income

Partner expenses: Automobile expenses

CCA

Operating expenses

Business income

Other partnership income:

Taxable capital gains

Eligible dividends

Gross up

Total other partnership income

Mr$.$ Cain's share

$50\%$

Mr$.$ Cain's share of other partnership income

Addition to net income

Part $5$

Calculate the credit Mr$.$ Cain can receive from charitable donations.

First amount of eligible gifts

$\backslash$times

Rate for first amount

$+$

Rate for gifts exceeding first amount

$\backslash$times

$($

Mr$.$ Cain's share of charitable donations

$-$

First amount of eligible gifts

$)$

$=$

Credit from charitable donations

$\backslash$times

$+$

$\backslash$times

$($

$-$

$)$

$=$

Part $6$

$$Finally$,$ find the federal dividend tax credit to which Mr$.$ Cain is entitled. $($Round your answer to the nearest whole$$ dollar.$)$

Gross up of eligible dividends

$\backslash$times

Inclusion rate

$\backslash$times

Federal dividend tax credit rate

$=$

Federal dividend tax credit

$\backslash$times

$\backslash$times

$=$

Answer & Explanation Solved by verified expert

See Answer