Maya lives in Toronto and owns 100% of Maya’s Ltd. The corporation was incorporated 10 years ago, in Ontario, to operate a retail clothing establishment in Toronto. The following is the recent balance sheet for the corporation.

The goodwill of the business has been valued at $250,000.

REQUIRED

Determine whether Maya’s Ltd. is a small business corporation, assuming that the marketable securities were held:

(1) As a short-term investment of surplus cash at the low-point of the corporation’s inventory cycle, and

(2) As a long-term investment to produce investment income.

Transcribed Image Text:

Assets Current Cash Marketable securities Accounts receivable (net of reserve) Inventory Prepaid expenses Total (equal to fair market value) Fixed Land, at cost (FMV: $225,000) Building, at net book value (FMV: $350,000) Equipment, at net book value (FMV: $100,000) Liabilities Current Accounts payable Income taxes payable Due to shareholder Maya's Ltd. BALANCE SHEET as at December 31, 2016 Mortgage payable Shareholder's Equity Share capital Retained earnings $ 2,500 200,000 95,000 270,000 2,000 $ 569,500 150,000 160,000 120,500 $1,000,000 $ 265,000 5,000 80,000 $ 350,000 275,000 $ 625,000 1,000 374,000 $1,000,000