You have been asked to prepare the Schedule 1 (reconciliation of accounting income to income for tax purposes) for SMR Limited, a Canadian-controlled private corporation (20% retail and 80% manufacturing business). The following income statement and miscellaneous financial information for the year ended December 31, 2020 has been provided to you for this purpose.

Sales.............................................................................		$5,600,000
Cost of goods sold........................................................		2,400,000
Gross profit..................................................................		$3,200,000
General and administrative expenses......	$300,000
Amortization............................................	100,000
Interest.....................................................	80,000	480,000
		$2,720,000
Gain on disposal of fixed assets...................................		85,000
Net income before income taxes..................................		$2,805,000
Income taxes
Current.................................................	$600,000
Deferred...............................................	340,000	(940,000)
Net income...............................................		$1,865,000

During your review of the working paper file and last years tax return, you have made the following notes to yourself, because you think that there might be tax implications associated with these items.

1. Included in cost of sales is an estimated reserve for a possible future decline in the market value of finished goods inventory of $57,000. Cost of goods sold includes a charge of $1,800 to set up an allowance for returns (at 0.1% of sales) that are not subsequently saleable at full retail price. No such allowance was recorded last year-end because the company only discovered that the allowance was necessary this year.

2. The gain on disposal of fixed assets consists of the accounting gain on the sale of some land for $415,000 on May 30, 2020. SMR purchased the land on January 15, 2019 for $315,000. The land was purchased with the intention of it being used to expand the manufacturing operation. After purchasing the property, SMR received some bad publicity and complaints regarding the expansion plans, as the land was relatively close to a new subdivision. The management group at SMR decided to sell the land and expand its operations at the current location instead. Real estate commissions of $15,000 were paid in relation to the sale. SMR expanded its manufacturing space by constructing a new building adjacent to its current manufacturing plant. The construction of the new building started March 1, 2019 and was completed June 30, 2020.

3. Included in general and administrative expenses are the following transactions:

(a)	landscaping	$17,000
(b)	donations consisting of $63,000 to registered charities and $1,000 to registered political parties	64,000
(c)	premium for term life insurance policy on the president in which the company is the beneficiary and the policy is used as collateral for a bank operating line of credit	22,200
(d)	memberships in private golf clubs for senior executives	3,200
(e)	meals and entertainment with clients	12,000
(f)	cost of employee training seminar to teach employees about new provincial workplace safety laws	7,200
(g)	cost of seasonal holiday party to which all employees were invited	17,700
(h)	Increase in warranty reserve provision (actual warranty costs: $18,000)	28,000

1. Other expenses deducted in the financial accounting computation of income include interest on insufficient income tax installments in the amount of $680 and damages paid to a supplier in the amount of $1,800.
2. You have correctly determined that the tax depreciation (capital cost allowance) available for the year is $93,400.

Question:

1. In good form, and providing all necessary calculations, compute 2020 income from business for tax purposes under Division B of the Income Tax Act
2. Briefly, explain why any of the above-listed items were omitted from your reconciliation.
3. Indicate any assumption you made and why the assumptions matter.