Question Description Bob Neat is the sole shareholder and only employee of Bob's Bookkeeping Services Ltd., a Canadian controlled private corporation with a December 31 year end. The Company provides on-site Bookkeeping services to a number of clients in the greater Toronto area. As Bob must travel extensively to service clients, the Company provides him with a vehicle to be used in his work. As Bob does not personally own a vehicle, he also uses the vehicle for personal travel. During 201, tow different vehicles were provided: Ford Focus: During the period January 1, 2019 through April 30, 2019, Bob had use of a Ford Focus that had been purchased in 2018 for $23,600. As of January 1, 2019 the Class 10 UCC balance was $20,060. During this period, Bob drove the care a total of 31,000 kilometers, 18,000 of which related to his work for the Company. On April 30, 2019, The car was sold for proceeds of $18,200. Mercedes E-Class Sedan: As the business was becoming very profitable, Bob decided he deserved a better equipped and more comfortable vehicle. On May 1, 2019, the Company acquires a Mercedes E-Class sedan for $52,000. During the period May 1 through December 31, 2019, Bob drives the car a total of 42,000 Kilometers, 23000 of which involved personal activities. These were the only vehicles owned by Bob's Bookkeeping Services during 2019. Bob had one of these vehicles available to him at all times during 2019. Throughout 2019, the Company paid for all of the operating costs of both vehicles, a total of $17,460. Required: Determine the following: A. The tax consequences to Bob's Bookkeeping Services Ltd. that result from owning and selling the Ford Focus and owning the Mercedes E-Class sedan during 2019. B. The minimum amount of the taxable benefit that Bob will have to include in his Net Income for Fax Purposes for 2019. Ignore HST considerations in your solution.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Bob Neat is the sole shareholder and only employee of Bob's Bookkeeping Services Ltd., a Canadian controlled private corporation with a December 31 year end. The Company provides on-site Bookkeeping services to a number of clients in the greater Toronto area. As Bob must travel extensively to service clients, the Company provides him with a vehicle to be used in his work. As Bob does not personally own a vehicle, he also uses the vehicle for personal travel. During 201, tow different vehicles were provided:
Ford Focus: During the period January 1, 2019 through April 30, 2019, Bob had use of a Ford Focus that had been purchased in 2018 for $23,600. As of January 1, 2019 the Class 10 UCC balance was $20,060. During this period, Bob drove the care a total of 31,000 kilometers, 18,000 of which related to his work for the Company. On April 30, 2019, The car was sold for proceeds of $18,200.
Mercedes E-Class Sedan: As the business was becoming very profitable, Bob decided he deserved a better equipped and more comfortable vehicle. On May 1, 2019, the Company acquires a Mercedes E-Class sedan for $52,000. During the period May 1 through December 31, 2019, Bob drives the car a total of 42,000 Kilometers, 23000 of which involved personal activities.
These were the only vehicles owned by Bob's Bookkeeping Services during 2019. Bob had one of these vehicles available to him at all times during 2019.
Throughout 2019, the Company paid for all of the operating costs of both vehicles, a total of $17,460.
Required: Determine the following:
A. The tax consequences to Bob's Bookkeeping Services Ltd. that result from owning and selling the Ford Focus and owning the Mercedes E-Class sedan during 2019.
B. The minimum amount of the taxable benefit that Bob will have to include in his Net Income for Fax Purposes for 2019. Ignore HST considerations in your solution.
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