The following is a condensed income statement for Smart Inc., a public corporation with a December 31, 2023, year end. Smart Inc. Income Statement for the year ended December 31, 2023 Sales ......................................................................................$ 8,165,000 Cost of goods sold....................................................................... 6,476,000 Gross profit................................................................................,,1,689,000 General and administrative expenses...............................................1,398,000 Gain from operations .................................................................. $ $291,000 Other income (deductions):............................................................ 1,131,000 Net income before income taxes......................................................1,422,000 Income taxes .............................................................................. (469,000) Net income after tax .....................................................................$ 953,000 Notes: 1) The "Cost of goods sold" an inventory reserve of $85,000 to account for slow- moving inventory items. This reserve was computed based on late 2023 selling prices of the inventory items involved. 2) The "General and administrative expenses" include the following: a) premiums of $1,800 ($150 per month) paid toward a $750,000 term life insurance policy on the president; the company is the beneficiary of the policy; the life insurance policy is required as collateral for a bank loan that was obtained on May 1, 2023; the premiums paid equal the net cost of pure insurance relating to this policy; b) depreciation of $362,000; . c) Promotion expenses as follows: i) Political donations which resulted in a significant government contract......... ..........................................................................................$18,000 ii) Charitable donations which resulted in a significant contract from a member of the charity's board .................................................13,000 iii) Cost of sponsoring a local hockey team.......................................... 3,200 iv) Meals with customers...................................................................6,000 v) Theatre tickets for suppliers.......................................................... 4,500 vi) Year-end party for all staff............................................................ 6,800 vii) Advertising in a Florida magazine aimed at Canadians vacationing there...................................................................................... 5,500 viii) Membership in a golf club which the company used extensively in entertaining customers........................................................... 3,700

0975 Taxation for Canadian Business Assignment 1 3) The "Other income (deductions)" account included the following deductions: a) Cost of amending its articles of incorporation...................................3,100 b) Costs incurred in connection with the issuance of shares.................. 6,500 c) Costs incurred in connection with the acquisition of shares of another company ................................................................ 12,700 d) Costs incurred in connection with negotiations for a new bank loan.... 9,000 e) Interest paid to Revenue Canada on the late payment of tax installments.. ..............................................................................................2,350 f) Loss from theft by accounts receivable clerk................................. 29,000 g) Damages paid to supplier for breach of contract............................ 23,000 h) Cost of landscaping around the building.........................................4,200 4) In December 2023, Smart Ltd. announced an early retirement plan for employees aged 60 to 65. The deadline for acceptance for eligible employees is March 1, 2024. Management has estimated that early retirement payments of $89,000 are likely to be required under the plan and had deducted this amount in computing "Other income (deductions)". There is no legal obligation for this expense at December 31, 2023, since no employees have accepted the offer. 5) The undepreciated capital cost and net book value balances at December 31, 2022 were as follows: a) Class 1 (4%)........................................................................$2,600,000 b) Class 6....................................................................................$16,600 c) Class 8 (photocopier).................................................................$21,750 d) Class 10.1.................................................................................$8,085 e) Class 12....................................................................................$5,000 f) Class 13 ...............................................................................$234,000 g) Class 14.1..................................................................................$7,000 6. Purchases made during 2023 were as follows: a) A new warehouse was purchased for $740,000. The cost of the land was $270,000 and the balance was allocated to the building: b) The company replaced its only photocopier with two new models, one that included a facsimile machine. The new photocopier machines cost $26,000 and $19,000 respectively. The old photocopier was sold for proceeds of $15,500. c) Improvements on its leased administrative offices were made at a cost of $324,000. The premises were rented in 2021 for 4 years with two successive options to renew for 5 years each. In 2023, improvements were made in the amount of $280,000; d) A company car (passenger vehicle) was purchased in 2023 for transporting out- of-town clients was purchased for $40,000 before PST and GST. This car replaced the only other existing company car that was purchased in 2020 for

0975 Taxation for Canadian Business Assignment 1 $35,000. The old car was sold for $4,500. Note that the taxpayer is a HST registrant. e) Some small tools were sold for $7,000. All of these tools were sold at a price less than their origin cost. Required: a) Compute net income for tax purposes for 2023. Show all calculations whether or not they seem relevant to the final answer. b) Comment on all items omitted from the calculation