Calculate the net business income:

APPENDIX

Accounting Information for 2019

James Specialty Bike Shop

Revenues

Motorcycle and Parts Sales $432,000

Expenses

Purchase of inventory (Note 1) $195,000

Local Advertising 5,100

Golf club dues (Note 2) 4,000

Fines and penalties (Note 3) 2,900

Insurance (Note 4) 8,000

Office expenses 3,000

Home Office expenses, excluding depreciation (Note 5) 2,940

Salaries (Note 6) 55,000

Employer contributions to CPP and EI 3,695

Depreciation (Note 7) 54,050

Loss on sale of equipment (note 7) 6,250

Truck Gas & maintenance (Note 8) 5,900

Total Expenses $345,835

Note 1: The opening inventory on January 1, 2019 was $10,000. The closing inventory on December 31, 2019 was $25,000.

Note 2: James joined the local golf club to find new customers. The membership cost was $4,000 for the year.

Note 3: In 2019 the business was sued for selling branded motorcycle parts without proper authorization from the brand owner. James signed a new distributorship agreement with the brand owner effective January 1, 2019 and part of the agreement provides that James will pay a penalty of $2,900 for pre-2019 transactions that were completed without proper authorization, in exchange for the brand owner dropping the charges against James. The penalty was paid February 1, 2019.

Note 4: The insurance expense includes the cost of the truck insurance of $1,500 see Note 8 below.

Note 5: Starting March 1, 2019, James moved the bookkeeping office from the shop to his home. A room representing 12% of the 1,000sq.m. home was set aside for the exclusive use of Susan's bookkeeping functions. The home has a cost of $500,000. Below are the costs for 2019 relating to the home office space:

Home Insurance $1,500

Interest on mortgage $7,500

Property taxes $4,800

Home telephone line $500

Utilities $6,200

Maintenance and repairs $4,000

TOTAL $24,500 x 12% = $2,940

Note 6: There are 2 employees: one mechanic (George Dewlitle) and one bookkeeper (Susan Bond). George was paid a gross salary of $37,000 for 2019. Susan was paid a gross salary of $18,000 for 2019. The T4 slip for Susan is included as a separate pdf document to this case study for your information, confirming the CPP contributions ($739.50 - box 16), EI premiums ($291.60 - box 18) and Federal Income tax ($4,000.00 - box 22) withheld at source on her salary for 2019.

Note 7: The following is the information relating to the fixed assets of the business.

Building: The building is 3,000 sq.m. located at 124 Main Street, Anytown, ON. Half the surface is used as a showroom for the customised motorcycles. The rest of the building is used as a shop for mechanic and customization work. The building was constructed on March 1, 2018 at a cost of $195,000. The UCC for tax purposes (class 1) at the beginning of 2019 was $189,150.

Truck: The truck is a Ford F150 extended cab pick-up that James uses for both business and personal purposes see Note 8 for operating costs. The truck was purchased on June 1, 2018 at a cost of $55,000. For tax purposes, maximum CCA was deducted in 2018 leaving a UCC balance on January 1, 2019 of $25,500.

Other Tangible Assets: The following details relate to the other fixed assets used in the business:

CCA UCC Balance

Description class Jan.1, 2019

Customizing tools and equipment class 53 $9,000

Computer-assisted design equipment class 12 $7,500

Computer class 50 $2,538

Office furniture class 8 $4,500

Class 53

Customizing tools were acquired on March 1, 2018 at a total cost of $12,000. For tax purposes, maximum CCA was deducted in 2018 leaving a UCC balance on January 1, 2019 of $9,000. Additional new equipment was acquired on December 1, 2019 at a cost $75,000.

Class 12

Computer-assisted design (CAD) equipment was acquired on March 1, 2018 at a cost of $15,000. For tax purposes, maximum CCA was deducted in 2018 leaving a UCC balance on January 1, 2019 of $7,500. During 2019, James decided to replace the CAD equipment because it was not performing well enough for the demands of his growing business. A new more powerful CAD equipment was purchased on March 1, 2019 at a cost of $55,000. The vendor of the new equipment accepted to take the old equipment in exchange. A trade allowance of $5,000 was received for the old equipment. The net book value for accounting purposes was $11,250 resulting in a loss of $6,250 included in the total expenses for accounting purposes for the year.

Class 50

Computer hardware was acquired on March 15, 2018 at a total cost of $3,500. For tax purposes, maximum CCA was deducted in 2018 leaving a UCC balance on January 1, 2019 of $2,538. No further additions were made in 2019.

Class 8

Office furniture was acquired on March 1, 2018 at a total cost of $5,000. For tax purposes, maximum CCA was deducted in 2018 leaving a UCC balance on January 1, 2019 of $4,500. No further additions were made in 2019.

Intangible Assets: On January 15, 2019, James signed a new 25-year distributorship agreement with the owner of a well-known motorcycle brand. James paid $60,000 to obtain the 25-year license, which is effective January 1, 2019.

Note 8: James has a truck that he uses for both business and personal purposes. Total distance driven for the year was 29,500km of which 90% were for business (26,550km). Total truck expenses for 2019 paid by the business were as follows (included in the financial information above):

Insurance $1,500

Fuel $2,900

Maintenance $3,000