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Case [I A: Calculating Net Business Income Paul me the sole proprietor of MEnterprises, a small retail shop selling widgets located in Edmonton, AB. The

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Case [I A: Calculating Net Business Income Paul me the sole proprietor of MEnterprises, a small retail shop selling widgets located in Edmonton, AB. The shop has been In operation for several years. Paul provides you with the Statement of Income for the preprietorship for December 31 of the current year: gm], Enterprises Statement of Income for the Year Ended December 31 (Current Year) Item Amount Amount Sales $600,000 Cost of sales: Opening inventory $50,000 Purchases m 300,000 Closing inventory g0,000 240 00 Gross prot 360,000 Expenses: Accounting and Legal (Note 2) 4,000 Advertising and promotion (Note 3) 5,000 Depreciation (Note 4] 26,000 Automobile expenses 7,000 Bad debts (Note 5) 4,000 Insurance (Note 6) 7,000 Interest 19,000 Office expenses (Note 7) 12,000 Rent 36,000 Wages and benets {Note 0) 110,000 230,000 Net income for the year: $130,000 D Notes to the above statement of income: HRH. Enterprises is a proprietorshl'p operated by Paul Egti, Accounting and legal include legal fees related to Paul's dispute with regard to a personal car accident, in the amount of $2,000. Advertising and promotion include \"Meals and Entertainment\" costs in the amount of $4,250. Information for capital cost allowance [CCAJ purposes: (a) The undepreciated capital cost balances at January 1, 2019 were Class 1: $200,000: Class 3: $50,000; Class 10: $30,000; Class 13: $37,500; Class 14.1: $0 (b) Disposal of property of plant and equipment: sale of the corporation's only Class 1 asset (proceeds: $130,000; original cost in 1994: $300,000}. The land on which the building was situated was sold for its fair market value which was equal to its cost in 1994. (c) During 2019, the corporation made the following purchases: - A new ofce building (Class 1, 6%} was purchased in October for $700,000. In addition, the post of the related land was $400,000. It cost $20,000 to pave part of the land for use as a parking lot,- - New ofce furniture was purchased for $25,000. This purchase replaced office furniture which was sold for its $4,000 net book value (original cost: $10,000); - An unlimited life franchise was purchased for $100,000; - A 10-year patent, class 44 (expiring June 30, 2029) was purchased on July 1 for $20,000: - Improvements on its leased head ofce premises which were rented in 2017 for four years with two successive options to renew for five years and five years. Improvements had originally been made in 2017 in the amount of $45,000. Additional improvements were made in 2019 at a cost of $28,000. (d) During the year, the corporation sold some small tools (each costing less than $500) for their net book value of $500. 5. The company has set up an allowance for doubtful accounts based on a review of the Accounts Receivable on December 31 of the current year. This is a procedure that the proprietorship follows every year. 6. Insurance includes life insurance premiums for Paul Win the amount of $3,000. This insurance is required as collateral for the business bank loan. 7. Ofce expenses Include the purchase of a computer, on January 15 of the current year, for $1,500 and $300 for an upgrade of accounting software for payroll tax information (Hint: these amounts were expensed in accounting statements, but for tax purposes they have to be added to Class 50 and Class 12). 8. Wages and benets include the club duesfmembership fees paid to the Royal Oak Club in the amount of $6,000. The club dues are paid for the ve managers who take clients to the Royal Oak Club on a regular basis for business purposes. 9. The following information was taken from various expense accounts: a. Hockey game tickets given to customers ................... 8,000 b. $3,000 for auto allowance paid to the sole employee. This allowance was calculated as $1 per km for 3,000 kms driven by the employee. c. Cost of sponsoring local little league teams ............... 5,000 d. $8,000 of nancing fees incurred in connection with the bank loan e. On December 1 of the current year, $10,000 was paid to one of the tenants to cancel a rental lease agreement because the company required the space for its own business operations. The amount was deducted in accounting statements. The lease of property had five years remaining at that time. You have been asked to reconcile accounting Income to Division 5 not business income for tax purposes for your client who is operating as a proprietorship. Ignore the effects of leap years

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