Question 1. Business Income Chapter 6 ( 58 pts ) The following income statement was prepared in accordance with GAAP. Westwood Station Caffe Income Statement for the year ended December 31, 2018 Sales Cost of sales (average cost) Gross Profit $121,000 42.350 $78,650 Expenses: Entertainment (note a) Amortization (note b) Franchise fees (note c) Professional fees Interest expenses (note d) Charitable donations Wages and salaries (note e) $ 2,200 4,000 6,000 1,500 2,800 550 26,000 43,050 Other income: Gain on disposal of land 3,800 Net Income before taxes $39,400 Notes: a) Entertainment expenses includes: Meals with customers and potential customers (retail price) $850 Suppers for the owner when he stayed later during busy times during the year $300 Golf dues for owner so he can entertain clients on the golf course $1050 b) The maximum capital cost allowance for tax purposes is $5,250 The franchise is a six year limited life franchise and the franchise fees includes: c) Company purchased Franchise on April 1 201X for $4200 Company pays franchise fees as a percentage based on sales, the cost for the current year is $1800 d) Interest expense includes: interest expense on the mortgage for the building - CRA penalty interest on late withholding tax payment 2200 600 e) Wages and salaries include: - the cost of Christmas gifts of $150 to each of the 6 employees. The company did not record this $150 on any of the employee's T4 - total bonuses of $2500 payable on July 14th of the next year. 10 years ago, the owner had purchased a corner lot on Main St and Young St. He was holding the lot as speculation for future expansion of his business. This year he decided to sell this parcel of land for $5000 and it created a gain which he included in business income. Selling price of land was $5000; and the original cost was $1200. Required: 1. Compute the corporation's net income from a business for tax purposes for 2018. a. Briefly explain why you are making the adjustments you are making. b. Also, if you do not use any of the items as listed in the problem, briefly explain why. 2. Show all your work for full marks