Rawr Industries has a taxation year that ends on December 31. They prepare their accounting statements in accordance with GAAP and had a net income of $117,600 for the 2019 fiscal year on these statements. Here are some notes related to the preparation of these statements:
1. $48,000 total was deducted as an income tax expense, which included $8,000 in future income taxes.
2. During the year, the Company starts selling a product on which it provides a six-year warranty. At the end of the year, it recognizes a warranty liability (and corresponding expense) of $32,000.
3. Financing costs, incurred on January 1, to issue new common stock during the year totaled $38,000. All of these costs were charged to expense in the account records.
4. As the Company was late in making its required income tax installments, it was charged $500 in installment interest.
5. The Company recorded $73,000 in amortization expense on the financial statements. Maximum available CCA deductions for this period were $62,000.
6. The Company’s accounting expenses includes a payment of dues in a local golf club of $3,000. Additionally, the cost of general meals and entertainment costs for meetings with clients during the year ending December 31, 2019 was $6,000.
7. The Company had a Christmas party during the year for all employees which cost $1,000 in meals and entertainment expenses. They typically only hold two seasonal company-wide parties a year.
8. Two employees worked at a remote work location for the company during the year. The meals for these two employees during their remote work were paid for fully by the Company and cost $2,700. These were expensed on the accounting income statement
as meals and entertainment expenses.
9. The Company spent $18,654 to investigate a site that they were going to be using for business purposes. It was fully expensed in the accounting income statement.
10. The Company expensed $7,000 of donations to local registered charities during the year.
11. On December 31, 2019, the Company paid landscaping costs of $12,000. These costs were treated as capital expenditures for accounting purposes and, as the expenditure was made at the end of the year, no amortization was recorded in the 2019 financial statements for this.
12. The Company’s Interest expense includes $6000 in bond discount amortization.
13. The 2019 accounting expenses included $2,000 for the premiums on a life insurance policy on the life of the Company’s president. The Company is the beneficiary of this policy. None of the Company’s creditors requires that this policy is in force; the Company just decided that they would pay into this insurance policy, just in case.
Calculate the minimum net income for tax purposes for Rawr Industries based on the above information. Use the excel response sheet to make your adjustments (problem 2 tab). Enter all your adjustments in the yellow boxes beside each line item. Show all your notes/ extra work done for each line item in the green section of the problem 2 tab. （If you are unsure of something, please make an assumption and list your assumptions in the green space provided for each question, along with your supporting calculations.）
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