Consumer Purchase Intention for Organic Personal Care Products

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Midterm Review Questions winter 2011

REVIEW 1

As the auditor of Mother Ltd. (Mother), you have been asked to draft a memorandum to the president to explain the future deductibility of loss carryovers of a wholly-owned subsidiary, Childco Ltd. (Childco). Mother acquired Childco on January 1, 2011 when Childco was experiencing financial difficulties. Childco manufactures paper products, whereas Mother is a wholesaler of office supplies and equipment. Both companies are Canadian-controlled private corporations and have December 31 year ends. Mother is very unsure about Childco future and may stop funding Childco if Mother gets fedup.

The loss carryovers of Childco are:
Non-Capital Losses Net Capital Losses
2005$300,000$50,000
2006 250,000 -
2007 200,000 -
2008 150,000 100,000
2009 50,000 -

On December 31, 2010, Childco had the following assets which are still on hand:

Cost or Capital UCC-Dec. 31 FMV-Dec. 31,
Cost 2009 2009
Land$ 700,000 N/A $1,000,000
Building 600,000 $500,000 400,000
Manufacturing
Equipment 1,000,000 NIL 300,000 Patent (Cl. 14) 125,000 100,000 20,000 Inventory 200,000 100,000

Net income for tax purposes for the year ended December 31, 2010 is ($50,000)

Required:

1)If mother wants does not believe that Childco can get out of it’s loser position, what would be the optimum losses left at January 1, 2011.

2)If mother lets Childco carry on its business as usual and inject sufficient money into Childco to turn things around, Calculate the losses left at January 1,2 011

REVIEW 2

Billbo Ltd. is a Canadian company of which 85% is owned by Bill Jones and 15% is owned by his brother Bo. Both Bill and Bo are Canadian residents. The company is a...
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