INCOME FROM BUSINESS

Decorous Stone and Tile (Deco) is a Canadian public company and wholesale distributor of various commercial and residential tiling solutions. Deco sources its products

from various manufacturers throughout Canada and Asia. Its primary customers are

construction companies and big box retailers throughout North America. Deco also has

showrooms in several large Canadian cities where it sells directly to local contractors.

Decos income statement for the year ending December 31, 2021, is as follows:

Expenses:

Additional information:

1. Employee benefits expense includes $37,500 for golf memberships

for Decos account managers and company executives.

2. Interest and bank charges expense includes $4,750 paid to the CRA for

late HST remittances.

3. General and administrative expenses includes warranty accrual of

$1,000,000 (actual claims in 2021 were $650,000).

4. Advertising and promotion expense includes $200,000 of advertising in a foreigen newspaper that was distributed to Canadian customers.

5. The allowance for doubtful accounts was calculated as 2% of the year-end

accounts receivable.

6. The UCC balances as at January 1, 2021, are:

Class 1: $5,000,000 (assets qualify for CCA at 6%).

Class 10.1 and 12: nil

7. Deco has the following capital asset additions and disposals during the year:

On July 1, 2021, Deco implemented a new company policy to provide cars to

its senior account managers. Deco purchased a luxury automobile for $70,000

on that date.

Deco replaced the roof on one of its warehouses for a cost of $300,000. For

accounting purposes this cost was capitalized (and not expensed in the

income statement).

Small tools (original cost of less than $500) with an aggregate cost of $450,000

were sold off for proceeds of $100,000.

For accounting purposes, the dispositions of the trucks, fixtures, and small

tools resulted in a loss on disposal of assets of $122,000 on the income

statement.

Sales $52,000,000

Cost of sales 32,000,000

Gross profit 20,000,000

Salaries and commissions $3,400,000

Employee bonuses 1,000,000

Employee benefits 933,000

Interest and bank charges 389,000

Amortization 1,100,000

General and administrative 3,450,000

Advertising and promotion 3,900,000

Legal and accounting 220,000

Loss on disposal of assets 122,000

Travel 8,000

Allowance for doubtful accounts 200,000

Total expenses 14,722,000

Net income for accounting purposes $ 5,278,000

Ursula Chang and Decorous Stone and Tile Inc. (Deco)

REQUIRED

Determine Decos business income for tax purposes for the 2021 taxation year using the spreadsheet provided.