Question #1: Business Income Stone Company (Stone) is a Canadian public company and wholesale distributor of various commercial and residential tiling solutions. They sources their products from various manufacturers throughout Canada and Asia. Its primary customers are construction companies and big box retailers throughout North America. Stone also has showrooms in several large Canadian cities where it sells directly to local contractors. The following chart shows Stones income statement for the year ending December 31, 2023. Sales $61,500,000 Cost of sales 42,000,000 Gross profit 19,500,000 Expenses: Salaries and commissions $3,450,000 Employee bonuses 1,050,000 Employee benefits 933,000 Allowance for doubtful accounts 201,000 Interest and bank charges 389,000 Amortization 1,100,000 General and administrative 3,465,000 Advertising and promotion 3,900,000 Legal and accounting 220,000 Loss on disposal of assets 122,000 Travel 8,000 Donations 12,000 Total expenses 14,850,000 Net income for accounting purposes $ 4,650,000 Additional information: 1. Employee benefits expense includes $37,500 for golf memberships for Stones account managers and company executives. 2. Employee bonuses were accrued at yearend and will be paid in February 2024. 3. The salary and commissions expense includes $500,000 of stockbased compensation relating to the companys stock option plan, and $150,000 of commissions that will be paid in January 2024. The stock options were issued prior to July 2023. 4. Interest and bank charges expense includes $5,150 paid to the CRA for late HST remittances, and $7,500 in financing fees to extend the terms of a mortgage on a warehouse. The rest of the expense relates to bank charges and borrowed funds from prior years to purchase office space. 5. General and administrative expenses includes: Company holiday party: $31,000 Client meals and entertainment: $102,500 Site investigation costs for a proposed warehouse (site was rejected): $25,000 Permanent landscaping around three of the companys showrooms: $170,000 Warranty accrual of $1,000,000 (actual claims in the year were $650,000) 6. Legal and accounting expense includes: Audit fees: $65,000 General corporate affairs: $52,500 Legal fees to enforce collection of overdue accounts receivable: $102,500 7. The allowance for doubtful accounts was calculated as 2% of the yearend accounts receivable. 8. The travel expense relates to sending a senior account manager to China to negotiate several new supplier contracts with various manufacturers in the region. Included in these costs is $850 for meals. 9. During the year, Stone incurred $100,000 in legal fees relating to the issuance of new shares. For accounting purposes,this amount was booked to equity and is not included in the legal and accounting expense on the income statement. 10. The allowance for doubtful accounts was calculated as 2% of the yearend accounts receivable. 11. The UCC balances as of January 1, 2023, are: Class 1: $5,000,000 Class 8: $3,200,000 Class 10: $400,000 Class 12: nil 12. Stone has the following capital asset additions and disposals during the year: On July 1, 2023, Deco implemented a new company policy to provide cars to its senior account man agers. Deco purchased a luxury automobile for $70,000 plus 13% HST 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). Deco began outsourcing its deliveries to third parties as a means of cost reduction. This resulted in its entire fleet of delivery trucks being sold off for proceeds of $250,000. The trucks originally cost $750,000. New furniture and fixtures were acquired for $325,000 in the year. Old fixtures originally costing $150,000 were sold off for proceeds of $25,000. Small tools 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 dis posal of assets of $122,000 on the income statement. 13. Stones Class 1 assets qualify for CCA at 6%.

Required: Using netincome for accounting purposes as yourstarting point, determine Stones business income fortax purposes for the 2023 taxation year.