Dr. Midas Welby opened up a psychiatry practice on March 1, 2019. He operates this practice out of his personal residence in Kingston and also has an office located in Belleville. Details of revenues and expenses for the 306 days ended December 31, 2019, are as follows – all amounts include HST because the services provided are not HST taxable: 

 

(a) Fees billed for services rendered in 2019 = $200,000.00 

 

(b) Included in the total fees billed for the year, are accounts receivable in the amount of $2,500.00. Of this amount, Dr. Welby estimates that he will be unable to collect $500. 

 

(c) Dr. Welby paid his wife a salary of $50,000 to manage the business affairs at both offices. The market value of such services in 2019 is estimated to be $35,000. 

 

(d) Dr. Welby requires his wife to use her own vehicle for her travelling and therefore has agreed to pay her a vehicle allowance. In 2019 the allowance he paid her was $.65 per kilometre driven for business use during the period March 1 to December 31, 2019. Mrs. Welby drove 26,000 kilometres for business use for the period March 1 to December 31, 2019. This allowance was not included on Mrs. Welby’s 2019 T4. 

 

(e) Membership fees paid to the Ontario Medical Association were $1,500.  

 

(f) Office supplies used in 2019 totalled $580.  

 

(g) Medical supplies used in 2019 totalled $2,460.  

 

(h) Office rent paid in 2019 was $12,000 (for the Belleville office)  

 

(i) The total house expenses for 2019 (12 months) were as follows:  

 

Mortgage interest $ 5,000.00

Mortgage principal 3,500.00

Property taxes 2,400.00

Heat and hydro 1,800.00

Insurance 650.00

 

 Dr. Welby’s office-in-home occupies approximately 20% of the total square footage of the house. 

 

(j) Anticipating that his practice would flourish, Dr. Welby purchased a new vehicle on March 5, 2019 at a cost of $36,000 (includes HST). Based on kilometres driven for the period March 1 to December 31, 2019, he estimated that the vehicle is used 75% for business use and expects that this percentage will vary each year. 

 

 (k) Interest paid in 2019 (301 days) on the loan to purchase the vehicle in (j) was $3,500.  

 

(l) The total vehicle operating costs paid for the period March 1 to December 31, 2019 were $4,500. 

 

(m) On March 5, 2019, office equipment and furniture was purchased at a total cost of $7,500. 

 

(n) The office in Belleville is leased for a period of 8 years, commencing March 1, 2019. The cost of leasehold improvements made in 2019 was $ 2,800. 

 

(o) Two computers were purchased on March 2, 2019 at a cost of $1,750 each. Based on time used, Dr. Welby estimated that the computer located in the Belleville office is used 100% for business purposes and the computer located at his office in Kingston is used 80% for business purposes. 

 

(p) Cost of accounting applications software purchased on March 3, 2019 was $400. This is used solely by the business. 

 

(q) Other amounts paid by Dr. Welby from the business’ bank account were as follows:  

 

Lottery tickets $ 950.00

Golf club membership 1,500.00 

 

Required:  

(a) Prepare a statement of income for income tax purposes to be filed by Dr. Welby with his 2019 personal income tax return. Remember to use proper statement format as you learned in ACCT1. 

(b) Complete a capital cost allowance schedule to accompany the statement of income.  

(c) Reasonable rates for vehicle allowances for 2019 are $ .58/$ .42