Hay’s Pet Spa (“HPS”) is a luxury grooming spa located in downtown and is a Canadian controlled private corporation. HPS started in 2014 when the sole shareholder, Hayley, decided to quit her job as an audit manager to take up a life of serving furry friends.

HPS has a team that is passionate about making sure you and your pets leave happy and with the best possible experience. Hayley’s most popular service is her “Full Bath & Paws Package” for dogs. This package includes a full grooming - deep cleaning and hydrating bath, blow dry, an all-over fur trim/cut, trimming of the face, shaving of the fur between the pads, a nail trimming and an ear cleaning. This package costs between $70 and $170 depending on the size of your furry friend.

In October 2020, Hayley discovered her accountant was stealing money from her so she decided to take over the bookkeeping herself. Although she was a fantastic audit manager, tax was never her forte so she’s asking for your help. Below is a summary of her 2020 revenues and expenses.

Revenue
Sales	$342,000
Gain on sale of shares	4,600
Expenses:
Amortization (Note 1)	14,300
Bad Debt Expense (Note 2)	3,200
General & Admin (Note 3)	97,800
Meals & Entertainment (Note 4)	15,050
Interest Expense	2,400
Salaries	80,000
Net Income	133,850

Feb 22: I changed Meals & Entertainment above from $7,250 to $15,050 because this is what the amounts add to in Note 4 below (this has no impact on the M&E part of your assignment because you need to use the amounts in Note 4 anyways). The Net Income is now $133,850. I will still accept the old Net Income number ($191,650) as a valid mark if you don’t want to change your assignment solution.

Note 1 - On January 1, 2020 HPS had a UCC balance of 84,200 in Class 8. Hayley purchased $1,400 of additional equipment during the year.

Note 2 - HPS had actual write offs of 1,400 during the year. After reviewing the accounts receivable listing it’s estimated that the total uncollectible balance is likely 4,000 as at December 31, 2020. In 2019 HPS deducted a reserve for bad debts of 1,500.

Note 3 - General & Admin includes donations to registered charities of $800; a donation to the Green Party of Canada of $250, bonuses that were accrued December 31, 2020 but not paid until May 15, 2021 of $1,400; accounting and legal fees of $900; advertising on a local radio station of $400 for a 4 month campaign that started December 1; and, the travel and registration costs to attend three pet grooming conferences during the year for $1,900 each (two out of town, one in Ottawa).

Note 4 - Meals & Entertainment includes costs for an annual christmas party for staff of $3,200; lunches for Hayley while she was working of $3,400; food and beverages for clients of $6,700; and a golf membership for Hayleys staff of $1,750.

Note 5 - Interest expense includes late fees on supplier invoices of $450; late payment of municipal property taxes of $130; and penalty and interest for late federal tax installment payments of $240.

Note 6 - Hayley had some landscaping done around the building during the year to make the grounds more attractive for customers. She capitalized this $12,000 cost for accounting purposes.

Required:

Calculate HPS’s net income (loss) for tax purposes. Show all of your work.