BTAX1 – Group Assignment #4

Student names:

Please note: answer question #1 OR question #2 – your choice!

Question #1
In order to supplement his income working in a Calgary bookstore, Mr. Victor Larson has decided to start
a home-based business that will specialize in selling used textbooks to university and college students.
The business will be run out of space that he has set aside in his residence. This space involves 18 percent
of the total floor space in the residence.
The residence was acquired on January 1, 2018 at a total cost of $426,000. It is estimated that $150,000
of this total value can be attributed to the land on which the residence is situated. For the year ending
December 31, 2018, Mr. Larson has the following costs that can be associated with this residence:

Utilities for Home (Heat, Light, and Water) $ 3,200

Mortgage Interest Paid 10,100
House Insurance 500
Property Taxes 4,300
Repairs and Maintenance for Home 2,600
Total $20,700

The business begins operations on January 31, 2018. On that date, Mr. Larson acquires the following
assets to be used in his new business:
Office Furniture and Storage Racks $18,500
Computer 1,430
Business Software 570

In addition, he has a separate telephone line installed for dealing exclusively with the mail order business.
The telephone charge includes charges for a toll-free number and a long distance package.
During the period January 31, 2018 through December 31, 2018, his mail order sales total $182,000.
Costs associated with these sales are as follows:

Cost of Merchandise Sold $98,000

Unsold Merchandise (Lower of Cost and Market) 23,500
Packaging Materials 2,400
Shipping Costs 4,600
Miscellaneous Office Supplies 560
Telephone (Total Charge for the Period) 1,100
Printing of Posters and Brochures Distributed 420

Required:

Prepare a statement of income and CCA schedule for Mr. Larson to include with his 2018 personal
income tax return. (use the fillable CCA schedule posted with the “Lecture notes for test #2”)
Question #2

Carol Basque is an experienced lawyer who has not incorporated her professional practice. She doesn’t
trust accountants as she was married to two of them (not at the same time). She operates her practice out
of a building, which she purchased several years ago for $725,000. Of this total, it is estimated that
$175,000 reflects the value of the land. It was a new building when she acquired it, her practice uses 100
percent of the building, and it was allocated to a separate Class 1. On January 1, 2018, the building has a
UCC of $447,831.
As her practice specializes in cases where lack of anger management has caused legal difficulties, she has
had to replace her office furniture several times. The latest was during 2018, when the divorcing owners
of a martial arts club could not come to a peaceful resolution to an asset split. A registered charity, Ex-
Cons R Us, hauled her destroyed furniture away to be used for training purposes and as spare parts in their
furniture repair shop.
The old furniture had a capital cost of $53,000 and a January 1, 2018 UCC of $38,160. She acquires new
furniture and fixtures at a cost of $78,000 on June 1, 2018.
In January, 2016, Carol acquired a $92,000 Lexus that she uses largely for business purposes. She has
concluded that, given the nature of her clientele, this car appears too luxurious. Based on this view, she
trades it in on the purchase of a $28,000 Toyota on January 2, 2018. The January 1, 2018 UCC for the
Lexus is $17,850.
Because the vehicle had been badly damaged by an exiting client who lost his case, the trade-in allowance
that she receives is only $12,000. During 2018, the Toyota is driven 41,000 kilometers, only 3,000 of
which were for personal use. The operating costs for the year were $6,150.
Other asset acquisitions during 2018 are as follows:

New Computer – February 1, 2018 $ 1,250

Applications Software – February 1, 2018 1,475

Other 2018 costs of operating her business, determined on an accrual basis, are as follows:

Building Operating Costs $27,300

Payments to Assistants (Note) 46,100
Miscellaneous Office Costs 13,600
Meals with Clients 15,500

Note The payments include $25,000 paid to her 17-year-old daughter. She works
part time during the school year and full time during the summer doing online
research for Carol’s practice.

During 2018, the revenues of Carol’s practice total $297,800.

Required:

Prepare a statement of income and CCA schedule for Carol to include with her 2018 personal income tax
return. (use the fillable CCA schedule posted with the “Lecture notes for test #2”)