The controller of Tek Enterprises Ltd. provided the Accountant with the following information.
Tek Enterprises Ltd.
Income
For the fiscal year ended December 31, 2012

Notes:
(1) Tek Enterprises Limited is a CCPC. It is not associated with any corporations. It paid federal Part I tax of $35,000 in 2012.
(2) The following items were deducted in the computation of Canadian wholesaling income above:
SR&ED expenditures (current in nature) ................................................. $50,000
Federal political contributions ................................................................. 1,000
(3) The taxable capital gain was calculated as follows:

(4) The corporation has net capital losses (incurred in 1999) of $13,000. It has unused foreign business tax credits (from 2011) of $100.
(5) Taxable capital employed in Canada in 2011 was $10.3 million.
The Accountant assigned a junior staff member to calculate the federal Part I tax payable for Tek Enterprises Ltd. The following is his calculation.
Net income .......................................................................... $392,000
Dividends ............................................................................ (21,000)
Donations ............................................................................ (75,000)
Net capital losses .................................................................... (13,000)
Taxable income ..................................................................... $283,000

Write a memo in point-form explaining to the junior staff member the errors in his calculation. Do not redo the calculations. Only describe his incorrect procedures in arriving at Part I tax so that the calculation may be redone correctly.

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Canadian wholesaling income.... Canadian retail business income .. Poreign retail business income (before foreign tax paid of $15,000) $251,500 50,000 40,000 4,500 Interest income Canadian long-term bonds Interest on accounts receivable outstanding for more than 30 days in the Canadian retail business . 5,000 25,000 Dividend income: $9,000 From taxable Canadian corporations .. .. . . . . . . From foreign corporations (before foreign tax of $1,800) (Tek Enterprises Ltd. owns less than 5% of the shares) . . 12.000 21,000 $392,000 . . Net income -....- . . . Marketable securities Equipment Total Proceeds Cost. 200 $15,200 6,200 $15,000 3,000 3,200 Gain (Loss) $12,000 (3,000 9,000 4,500 Abatement: Taxable income .. $243,000 >< 10% 24,300 $137,500 Foreign tax credit Lesser of: (a) Foreign tax paid (815,000 1,800) $16,800 Foreign income $52,000 $283,000 +$21,000$13,000 _ × $137,500 $22,555 (16,800) Small business deduction: 17% the least of: (a) Active business income: wholesaling business . . . . 825 1,500 . . 50,000 Foreign retail business. . . .40,000 $341,500 (b) $283,000 4 X $16,800 215,800 (c) Business limit: . . . . . .. 500,000 (36,686) (650) Political contribution tax credit .. . Federal PartI tax payable. 55,064