You, CPA, have just finished meeting with your client, Mrs. Cash and your partner, Todd Thompson. Mrs. Cash lives in Ontario and is the owner of Cash Systems Inc. (CSI). CSI is a Canadian controlled private corporation (CCPC). CSI is not a manufacturer. CSI was incorporated in Ontario on January 1, 2020 and it has a December 31st year-end. It started business operations on January 1. Mrs. Cash initially subscribed for 100 common shares of CSI for $100 in aggregate. CSI does not have any other shares. In 2020, CSI paid an eligible dividend of $2,000 to Mrs. Cash. On January 1, 2020, Mrs. Cash lent $250,000 to CSI in order to fund business operations. This loan charges 5% interest. This loan agreement is in writing and CSI will pay the interest each year and will repay the principal in full in 2023. No principal will be repaid prior to 2023. Additional information about CSI is provided in Exhibit I. Mrs. Cash wants you to compute CSI's minimum net income for tax purposes, taxable income and federal income taxes payable for its December 31, 2020 year-end. You should also calculate I any dividend refund and any eligible and non-eligible RDTOH account balances. Mrs. Cash does not need you to discuss her personal tax consequences. Todd Thompson says you should assume the amounts in Exhibit I are reasonable (unless otherwise stated) and you should claim the maximum CCA. Please also comment on any amounts that are not deductible for tax purposes. You do not need to give ITA references. You can ignore provincial income taxes, instalments and GST/HST. Do not do a financial accounting income statement. Instead calculate net income for tax purposes directly (i.e., Revenue minus tax-deductible expenses) and show your calculations. Exhibit I Additional Information Cash Systems Inc. CSI installs portable payment processing terminals for commercial customers in Canada. These terminals allow a merchant's customers to pay with credit or debit cards CSI has two terminals: Basic and Premium. Basic does not allow for payment by mobile phone (only credit and debit). Premium allows for payment by mobile phone (along with credit and debit) O Continued o CSI charges each of its merchants a $200 initial fee to install the Basic terminal and charges a $500 initial fee to install the Premium terminal o CSI charges each merchant a fee of $1 per transaction (i.e., per each customer credit, debit or mobile phone payment) For its 2020 year-end, CSI had 5,000 new merchant installations. 30% were Premium terminals and 70% were Basic terminals; and these merchants' customers had the following number of transactions: Quarter 1 15,000 Quarter 2 90,000 Quarter 3 140,000 Quarter 4 750. 995.000 . CSI incurs the following costs related to the terminals: $25 of direct costs related to the installation of each terminal; and $40 for the cost of each Basic terminal and $90 for the cost of each Premium terminal. Given the small cost of these machines, Todd Thompson has instructed you to just expense (and not capitalize) these terminals CSI also incurred the following monthly expenses (beginning in January): o Rent and utilities of $8,000 per month, o Salaries expense of $11,000 per month, and Advertising expense of $1,000 per month I For its 2020 year-end CSI also incurred the following expenses: Accrued a bonus expense of $100,000. This bonus relates to the 2020 year-end and will be paid on June 30, 2021 o Incurred legal and regulatory fees related to the initial incorporation of $3,000 o Incurred accounting fees related to financial reporting and business consulting of $15,000 Incurred legal fees of $2,000 related to drafting the shareholder loan contract Incurred legal fees of $10,000 related to drafting sales contracts with merchants o Incurred expenses of $5,000 for entertainment purposes for employees o Incurred $2,500 of parking ticket fees payable to the City of Toronto Mrs. Cash estimates that she will have warranty expenses of $5,000 per month since the terminals are offered to merchants with a warranty. However, to date there has been no cases of malfunction of any terminals and no warranty costs have been incurred On January 10, 2020, CSI incurred the following business expenditures. All capital assets were purchased new from arm's length persons: o Purchased chairs and other furniture for $17,000 o Purchased new manufacturing equipment for $50,000 o Purchased a 15-year patent for $150,000 o Purchased 1 a new Mercedes (non-electric) for $65,000 and o Began renovating a rented office to make it more modern at a cost of $600,000. The renovation was finished in August and was paid in full in August. The lease started January 1, 2020 and is for 6 years . In addition, in 2020 CSI earned the following investment income: o Taxable capital gains of $50,000, and o Canadian dividend income of $20,000 in aggregate CSI received $10,000 of non-eligible dividends from a non-connected company, and CSI received $10,000 of eligible dividend from a connected company. CSI owns 25% of the shares of the connected company. The connected company received a $250 dividend refund in aggregate (from eligible RDTOH) on the payment of this dividend CSI has less than $10M of taxable capital and is not associated with any other company. CSI has adjusted All of less than $50,000 Assume the prescribed interest rate is 1% at all times . You, CPA, have just finished meeting with your client, Mrs. Cash and your partner, Todd Thompson. Mrs. Cash lives in Ontario and is the owner of Cash Systems Inc. (CSI). CSI is a Canadian controlled private corporation (CCPC). CSI is not a manufacturer. CSI was incorporated in Ontario on January 1, 2020 and it has a December 31st year-end. It started business operations on January 1. Mrs. Cash initially subscribed for 100 common shares of CSI for $100 in aggregate. CSI does not have any other shares. In 2020, CSI paid an eligible dividend of $2,000 to Mrs. Cash. On January 1, 2020, Mrs. Cash lent $250,000 to CSI in order to fund business operations. This loan charges 5% interest. This loan agreement is in writing and CSI will pay the interest each year and will repay the principal in full in 2023. No principal will be repaid prior to 2023. Additional information about CSI is provided in Exhibit I. Mrs. Cash wants you to compute CSI's minimum net income for tax purposes, taxable income and federal income taxes payable for its December 31, 2020 year-end. You should also calculate I any dividend refund and any eligible and non-eligible RDTOH account balances. Mrs. Cash does not need you to discuss her personal tax consequences. Todd Thompson says you should assume the amounts in Exhibit I are reasonable (unless otherwise stated) and you should claim the maximum CCA. Please also comment on any amounts that are not deductible for tax purposes. You do not need to give ITA references. You can ignore provincial income taxes, instalments and GST/HST. Do not do a financial accounting income statement. Instead calculate net income for tax purposes directly (i.e., Revenue minus tax-deductible expenses) and show your calculations. Exhibit I Additional Information Cash Systems Inc. CSI installs portable payment processing terminals for commercial customers in Canada. These terminals allow a merchant's customers to pay with credit or debit cards CSI has two terminals: Basic and Premium. Basic does not allow for payment by mobile phone (only credit and debit). Premium allows for payment by mobile phone (along with credit and debit) O Continued o CSI charges each of its merchants a $200 initial fee to install the Basic terminal and charges a $500 initial fee to install the Premium terminal o CSI charges each merchant a fee of $1 per transaction (i.e., per each customer credit, debit or mobile phone payment) For its 2020 year-end, CSI had 5,000 new merchant installations. 30% were Premium terminals and 70% were Basic terminals; and these merchants' customers had the following number of transactions: Quarter 1 15,000 Quarter 2 90,000 Quarter 3 140,000 Quarter 4 750. 995.000 . CSI incurs the following costs related to the terminals: $25 of direct costs related to the installation of each terminal; and $40 for the cost of each Basic terminal and $90 for the cost of each Premium terminal. Given the small cost of these machines, Todd Thompson has instructed you to just expense (and not capitalize) these terminals CSI also incurred the following monthly expenses (beginning in January): o Rent and utilities of $8,000 per month, o Salaries expense of $11,000 per month, and Advertising expense of $1,000 per month I For its 2020 year-end CSI also incurred the following expenses: Accrued a bonus expense of $100,000. This bonus relates to the 2020 year-end and will be paid on June 30, 2021 o Incurred legal and regulatory fees related to the initial incorporation of $3,000 o Incurred accounting fees related to financial reporting and business consulting of $15,000 Incurred legal fees of $2,000 related to drafting the shareholder loan contract Incurred legal fees of $10,000 related to drafting sales contracts with merchants o Incurred expenses of $5,000 for entertainment purposes for employees o Incurred $2,500 of parking ticket fees payable to the City of Toronto Mrs. Cash estimates that she will have warranty expenses of $5,000 per month since the terminals are offered to merchants with a warranty. However, to date there has been no cases of malfunction of any terminals and no warranty costs have been incurred On January 10, 2020, CSI incurred the following business expenditures. All capital assets were purchased new from arm's length persons: o Purchased chairs and other furniture for $17,000 o Purchased new manufacturing equipment for $50,000 o Purchased a 15-year patent for $150,000 o Purchased 1 a new Mercedes (non-electric) for $65,000 and o Began renovating a rented office to make it more modern at a cost of $600,000. The renovation was finished in August and was paid in full in August. The lease started January 1, 2020 and is for 6 years . In addition, in 2020 CSI earned the following investment income: o Taxable capital gains of $50,000, and o Canadian dividend income of $20,000 in aggregate CSI received $10,000 of non-eligible dividends from a non-connected company, and CSI received $10,000 of eligible dividend from a connected company. CSI owns 25% of the shares of the connected company. The connected company received a $250 dividend refund in aggregate (from eligible RDTOH) on the payment of this dividend CSI has less than $10M of taxable capital and is not associated with any other company. CSI has adjusted All of less than $50,000 Assume the prescribed interest rate is 1% at all times