George Cadbury Case Summary
Part A (27 marks)
George Cadbury (SIN 454 313 206; DOB April 20, 1964) is married to Lucy (SIN 454 206 319; DOB July 31, 1965) whose net income is $50,000. They have no children at home which is located at 24 Briar Park Lane, Kitchener, Ontario, N2E 2H2. George is the proprietor of a candy store (business code 445292). The income statement is as follows:
George’s Candy Emporium
Income Statement
For the Year Ended December 31, 2013
Sales $320,000
Cost of sales Inventory at beginning of year $ 15,000 Purchases 163,000 178,000 Inventory at end of year 16,000 162,000
Gross profit
158,000
Expenses Advertising 5,000 Insurance 3,000 Business taxes and licenses 500 Office expense 1,500 Supplies 2,000 Accounting fees 3,000 Rent 12,000 Maintenance 1,000 Wages and benefits …show more content…
Part B (48 marks)
George would like to expand to a second location. He is wondering if it is time to incorporate. He has determined that with Lucy’s earnings, they can live on the cash that he would retain after a $40,000 salary. The balance of earnings would be available to reinvest in the business.
Required:
Advise George whether he should incorporate. In giving the advice, tell George how much tax he would save or pay extra and how much he would defer or pay ahead of time if his business was incorporated. Use the following approach to document your findings.
1. Using the tax planning worksheets in George’s 2013 personal return, project the amounts that George would owe if he took a salary of $40,000. George would be EI exempt, but he would be subject to CPP deductions and OHIP.
2. Prepare an assumed 2013 T2 assuming that the candy store is already incorporated starting with a GIFI income statement (no balance sheet). Don’t forget to enter George’s salary and the company’s share of CPP deductions. Use 899313373 as the business number. Don’t worry about adjusting the income statement for tax
George Cadbury (SIN 454 313 206; DOB April 20, 1964) is married to Lucy (SIN 454 206 319; DOB July 31, 1965) whose net income is $50,000. They have no children at home which is located at 24 Briar Park Lane, Kitchener, Ontario, N2E 2H2. George is the proprietor of a candy store (business code 445292). The income statement is as follows:
George’s Candy Emporium
Income Statement
For the Year Ended December 31, 2013
Sales $320,000
Cost of sales Inventory at beginning of year $ 15,000 Purchases 163,000 178,000 Inventory at end of year 16,000 162,000
Gross profit
158,000
Expenses Advertising 5,000 Insurance 3,000 Business taxes and licenses 500 Office expense 1,500 Supplies 2,000 Accounting fees 3,000 Rent 12,000 Maintenance 1,000 Wages and benefits …show more content…
Part B (48 marks)
George would like to expand to a second location. He is wondering if it is time to incorporate. He has determined that with Lucy’s earnings, they can live on the cash that he would retain after a $40,000 salary. The balance of earnings would be available to reinvest in the business.
Required:
Advise George whether he should incorporate. In giving the advice, tell George how much tax he would save or pay extra and how much he would defer or pay ahead of time if his business was incorporated. Use the following approach to document your findings.
1. Using the tax planning worksheets in George’s 2013 personal return, project the amounts that George would owe if he took a salary of $40,000. George would be EI exempt, but he would be subject to CPP deductions and OHIP.
2. Prepare an assumed 2013 T2 assuming that the candy store is already incorporated starting with a GIFI income statement (no balance sheet). Don’t forget to enter George’s salary and the company’s share of CPP deductions. Use 899313373 as the business number. Don’t worry about adjusting the income statement for tax