Your client, Jon's Auto Parts Ltd., a Canadian-controlled private corporation, has prepared its own financial statements for the year ended December 31, 2019. The financial statements are not necessarily in accordance with generally accepted accounting principles.

Jon's Auto Parts Ltd.

Balance Sheet

December 31, 2019

Assets:

Cash $ 75,401

Accounts receivable 131,520

Inventory 526,810

733,731

Capital assets, net of amortization 1,883,200

Development costs 178,750

Goodwill 1,200,000

$3,995,681

Liabilities:

Accounts payable $ 229,090

Long-term debt 866,295

1,095,385

Shareholders' Equity:

Share capital 110,000

Contributed surplus 1,200,000

Retained earnings 1,590,296

2,900,296

$3,995,681

Jon's Auto Parts Ltd.

Statement of Income and Retained Earnings

For the Year Ended December 31, 2019

Sales $1,503,850

Cost of sales

Opening inventory $287,120

Material costs 715,690

Wages 215,321

Amortization 165,000

Rent 55,000

Overhead 32,300

Closing inventory (526,810) 943,621

Gross profit 560,229

Expenses

Administrative salaries and benefits 85,320

Advertising 22,551

Amortization of capital assets 20,860

Automotive expenses 7,390

Bad debts 6,514

Charitable donations 500

Interest expense

- on building loan 23,833

- on equipment loan 15,506

Loss on sale of computer 17,500

Management bonuses 73,654

Meals and entertainment 7,815

Office expense 8,312

Professional fees 8,020

Sales commissions and benefits 37,977

335,752

Income before income taxes 224,477

Income taxes 51,600

Net income for the year 172,877

Retained earnings, beginning of year 1,417,419

Retained earnings, end of year $1,590,296

The following information was provided by Jon's Auto Parts Ltd.'s accountant who prepared the financial statements:

1. Accounts receivable The company provides an allowance for doubtful accounts for accounting purposes, based on historical experience, equal to 4% of gross receivables.

A/R Allowance Net

December 31, 2018 $120,000 $ 4,800 $115,200

December 31, 2019 137,000 5,480 131,520

The actual doubtful accounts, based on a review of the aged listing, were $2,200 and $6,300 at December 31, 2018 and 2019, respectively.

2. Inventory The inventory is valued at cost which is determined on a direct cost basis. One particular line of parts which is included in inventory has a market value of nil but is recorded on the books at $35,000. The write-down has not been recorded since the total cost of inventory is less than the total market value.

3. Capital assets, net of amortization

December 31, 2019 December 31, 2018

Accumulated Accumulated

Cost Amortization NBV Cost Amortization NBV

Land $ 300,000 $ - $ 300,000 $ - $ - $ -

Building under

construction 800,000 - 800,000 - - -

Manufacturing

equipment 1,525,060 857,000 668,060 1,370,000 692,000 678,000

Computer

equipment 33,000 17,360 15,640 33,000 16,000 17,000

Computer

hardware 110,000 16,500 93,500 70,000 28,000 42,000

Computer

software 12,000 6,000 6,000 12,000 3,000 9,000

$2,780,060 $896,860 $1,883,200 $1,485,000 $739,000 $746,000

The company began the construction of a building to house their manufacturing operations in September 2019. The building has an estimated completion date of May 2020.

The company replaced its computer hardware in 2019. The old equipment was depreciated to a net book value of $42,000 and its disposition resulted in a loss of $17,500. The old computer hardware was included in Class 10 for CCA purposes.

The company purchased a piece of manufacturing equipment during the year for $155,060.

There were no other additions or deletions of capital assets during the year. The closing UCC's at December 31, 2018 were:

Class 8 $ 25,000

Class 10 26,000

Class 43 410,000

4. Purchases- During the year the company bought $32,000 worth of new furniture for the office.

5. Goodwill The company had a valuation completed by an independent valuator early this year. The valuation identified that the company had goodwill of $1,200,000. The company recorded the goodwill in order to enhance the financial position of the company to potential investors.

6. Accounts payable Accounts payable at December 31, 2019 included bonuses payable to employees unrelated to the company of $25,000 and bonuses payable to employees related to the company of $35,000. The bonuses were considered reasonable and were paid on June 30, 2020 before the 2019 tax returns were filed.

Required:

Determine the minimum Division B income for tax purposes of Jon's Auto Parts Ltd. for the year ended December 31, 2019.