You have been assigned to the audit team for ABC Ltd., a public company one of your significant clients. Below is the income statement prepared by the company's accountant for the December 31, 2022 year-end. ABC LIMITED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2022 Sales $46,394,000 Cost of sales (Note (1)) (12,899,000) Gross profit $ 33,495,000 General and administrative expenses (Notes (2)-(7)) (15,344,000) Selling expenses (Note (8)) (8,421,000) Income from operations $ 9,730,000 Other income (Notes (9)-(10))170,000 Net income before income taxes $ 9,900,000 Provision for income taxes (3,960,000) Net income $ 5,940,000 Notes: Through various discussions with the accountant, you have been able to determine that the following information has been recorded in the financial statements: (1) ABC had a number of items of inventory that did not sell well in the current year. For accounting purposes, the accountant has recorded a reserve for inventory obsolescence. The reserve was calculated based on the carrying value of any inventory item that had not had a sale in the last 180 days. The reserve at year-end was $2,185,000. (2) ABC provides insurance for employees and paid the following amounts to Nat Insurance Company during the year: $3,000,000 insurance policy on the life of the president included in insurance expense ($500 per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000 $2,000,000 insurance policy on the life of the vice-president marketing included in insurance expense . . . . . . . . . . . . . . . . . . . . . . . . 4,000 Group term life insurance for employees included in salaries and benefits ($39,500 X 12 months) . . . . . . . . . . . . . . . . . . . . . . . . 474,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $484,000 ABC is the beneficiary of the policies on the president and vice-president. On August 1, 2022, ABC renegotiated its bank debt, and due to the ever increasing responsibilities of the president, the bank required the insurance policy on the life of the president as part of the collateral for the loan. The premiums on the policy are equal to the net cost of pure insurance for the policy. 3) An analysis of the professional fees for 2022 revealed the following expenses: Legal and accounting fees related to the issuance of shares . . . . . . . . . . . . . . . $34,500 Costs incurred regarding the renegotiating of the bank loans . . . . . . . . . . . . . . 36,400 Costs incurred to defend the company against a wrongful dismissal charge . . . 75,400 Costs related to the structuring of an agreement for the purchase of equipment from a foreign company 41,700 Appraisal costs to determine value of the equipment for the bank. 7,100 4) During the year, there were substantial repairs completed to the outside of the building. After the repairs some of the landscaping had to be redone. The total costs were $189,000. Of this, $43,700 relates to the landscaping costs. The entire $189,000 was included in general and administrative expenses. 5) A review of the other expense accounts included in general and administrative expenses showed the following: Amortization$3,250,000 Severance payments to four managers* 445,000 Loss from theft by accounting clerk 11,500 * Four managers each received $111,250 and 3 out of four managers received the pay during the year while the fourth manager was finally paid out in November 2023 due to a legal dispute. 6) In early November 2022, ABC announced an early retirement package that was made available to employees over the age of 60. In order to provide employees with the time required to assess the offer, the deadline for accepting the package has been set at February 15, 2023. While no formal replies were received as of December 31, 2022, the personnel manager anticipates a high acceptance rate. She expects that the costs associated with the packages will be $739,000. This cost has been accrued in the 2022 financial statements. 7) The following information was taken from the various selling expense accounts: Cost of sponsoring presentations at a local theatre company . .$50,000 Hockey game tickets given to customers .. . . . . . . . . . . . . . . . . . . . 13,000 Meals and entertainment costs of salespeople . . . . . . . . . . . . . . .115,500 Staff Christmas party and summer barbecue 29,800 Cost of sponsoring local little league teams 7,000 Memberships for salespeople at local golf courses 16,700 8) The other income includes a loss on the sale of various fixed assets of $43,900. 9) During the year, the company had cash on hand for a short period of time due to the timing of certain contract payments. The funds earned interest income of $12,700 while they were held. Other Information: 10) Interest on Long Term Debt includes: a) $38,000 of interest on bonds issued to buy shares of another company b) $50,000 of interest on the mortgage on the new plant 11) The undepreciated capital cost balances at January 1, 2022 were as follows: Class 1 ...........................$470,000 Class 8............,,...............$530,000 Class 10............................$280,000 Class 13............................$65,313 Class 14.1..........................$0 a) Gain on disposal of property of plant and equipment consists of the profit on the sale of the corporation's only Class 3 asset (proceeds: $380,000; original cost in 2006: $700,000). The land on which the building was situated was also sold for its fair market value which was equal to its cost in 2006. b) During 2022, the corporation made the following purchases: A. A new office building was purchased in October for $900,000. The cost of the related land was $600,000. It cost $40,000 to pave part of the land for use as a parking lot; B. New office furniture was purchased for $85,000. This purchase replaced office furniture which was sold for its $40,000 net book value (original cost: $50,000); C. An unlimited life franchise was purchased for $200,000; D. A 10-year license to use patented information (expiring June 30, 2032) was purchased on July 1 for $81,000; and E. Improvements on its leased head office premises which were rented in 2020 for four years with two successive options to renew for 4 years and 3 years. Improvements had originally been made in 2020 in the amount of $95,000. Additional improvements were made in 2022 at a cost of $78,000. F. During the year, the corporation purchased a truck for $50,000 which replace an old truck which they sold for $20,000 (original cost $40,000). Based on the information that you have obtained, your manager has asked you to calculate the income from business for tax purposes for ABC for December 31, 2022. He also wants you to show all calculations whether or not they seem relevant to the final answer and comment on all items omitted from the calculation.