Spock Ltd. a Canadian Controlled private corporation has carried on business in Canada since its incorporation under

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Question:

Spock Ltd. a Canadian Controlled private corporation has carried on business in Canada since its incorporation under the Canadian Business Corporations Act in 1987.

You are required to calculate the minimum income from business or property of the company for the year ended December 31, 2021 (ie Division B Income).

SPOCK LTD INCOME STATEMENT
For the year ended December 31, 2021

Sales ................................................................................................................. $8,500,000

Cost of goods sold:
Inventory, January 1, 2021.................................................. $800,000
Purchases ............................................................................. 7,000,000
$7,800,000
Inventory, December 31, 2021 ............................................ 600,000
Cost of goods sold............................................................................................ (7,200,000)
Gross profit ...................................................................................................... $1,300,000

Selling expenses .................................................................. $ 500,000
General and administrative expenses .................................. 200,000 (700,000)
$ 600,000

Other income.................................................................................................... 60,000
$ 660,000
Provision for income taxes............................................................................... (300,000)
Net income ....................................................................................................... $ 360,000

Included in this summary of the financial results of Spock Ltd. are the following details:
(1) Selling expenses include:
Meals and entertainment........................................................ $11,500
Golf club memberships.......................................................... 10,000
Charitable donations .............................................................. 5,000
Bonus declared but unpaid .................................................... 20,000

(2) General and administrative expenses include:
Depreciation........................................................................... 110,000
Amortization of License ........................................................ 9,000

(3) Other income includes:
Gain on disposal of truck (proceeds of $10,000; net book value of $7,500)...... 2,500
Interest income ...................................................................... 3,000
Volume rebates ...................................................................... 2,000

(4) Insurance of $10,000 was taken out on the President of the company during the fiscal year.

(5) The company had no bank loan outstanding during the fiscal year 2021.

(6) Insurance expense includes $2,250 for fire and theft coverage on the company's building and contents. The annual premium for this coverage is $1,800 and is paid each year on April 1. The prepaid insurance premium of $450 on December 31, 2021, was not capitalized as it was considered immaterial for accounting purposes.

(7) Interest and bank charges include:
Interest expense on bank loan used to purchase fixed assets $3,400
Penalty for filing 2020 corporate tax return late 2,600
Bank charges for NSF cheques 1,100

(8) Legal and accounting expense includes the following:
Fees for appealing a federal income tax assessment are $ 20,000

(9) The bonus was paid on May 15, 2022, when the 2021 corporate tax return was being prepared.

(10) Included in the Cost of Goods Sold is $50,000 of HST paid to a third party

(11) On January 1, 2021, the undepreciated capital cost for each class of its assets was as follows:
Class 8 — office furniture and equipment 15,000
Class 10.1 — automobiles 11,550
Class 10 — Truck 76,500
Class l2 — small tools 5,000
Class 13 — leasehold improvements 175,000

The following additional information was found in the 2021 audit files:
(1) New office furniture was purchased in January 2021 for $10,000. This purchase replaced old assets, which were sold for $28,000. None of the old assets were sold for more than the original cost.
(2) Some small tools were sold for a total of $7,000. All of these tools were sold at a price less than their original cost.
(3) The opening balance in Class 13 represents leasehold improvements of $210,000 made during August 2019 to the leased warehouse. In August 2021, further leasehold improvements that were capitalized in the balance sheet (not expensed for accounting purposes) were made to the same leased warehouse at a cost of $24,000. The remaining lease term on January 1, 2021, was five years with two successive two-year renewal terms.
(4) The Class 10.1 automobile was purchased in December 2019 for $35,000. In 2021, it was sold for $25,000. A new automobile was purchased for $45,200, in March 2021 which included an HST of $5,200 (13%).
(5) A license (expected to be used indefinitely) was purchased for $63,000 in 2021. Three thousand was deducted in the T2S(1) since it was not deducted in the General and Administrative Expenses (not deducted for accounting purposes).
(6) A new computer was purchased in January 2021 for $7,000.
(7) Spock purchased a new building for $600,000 which was used 95% for manufacturing and processing.