Decorous Stone and Tile (“Deco”) is a Canadian public company and wholesale distributor of various commercial and residential tiling solutions. Deco sources its products from various manufacturers throughout Canada and Asia. Its primary customers are construction companies and big box retailers throughout North America. Deco also has showrooms in several large Canadian cities where it sells directly to local contractors. Deco’s income statement for the year ending December 31, 2021, is as follows: Expenses: Additional information: 1. Employee benefits expense includes $37,500 for golf memberships for Deco’s account managers and company executives. 2. Interest and bank ch
Decorous Stone and Tile (“Deco”) is a Canadian public company and wholesale distributor of various commercial and residential tiling solutions. Deco sources its products
from various manufacturers throughout Canada and Asia. Its primary customers are
construction companies and big box retailers throughout North America. Deco also has
showrooms in several large Canadian cities where it sells directly to local contractors.
Deco’s income statement for the year ending December 31, 2021, is as follows:
Expenses:
Additional information:
1. Employee benefits expense includes $37,500 for golf memberships
for Deco’s
2. Interest and bank charges expense includes $4,750 paid to the CRA for
late HST remittances.
3. General and administrative expenses includes warranty accrual of
$1,000,000 (actual claims in 2021 were $650,000).
4. Advertising and promotion expense includes $200,000 of advertising in a foreigen newspaper that was distributed to Canadian customers.
5. The allowance for doubtful accounts was calculated as 2% of the year-end
accounts receivable.
6. The UCC balances as at January 1, 2021, are:
• Class 1: $5,000,000 (assets qualify for CCA at 6%).
• Class 10.1 and 12: nil
7. Deco has the following capital asset additions and disposals during the year:
• On July 1, 2021, Deco implemented a new company policy to provide cars to
its senior account managers. Deco purchased a luxury automobile for $70,000
on that date.
• Deco replaced the roof on one of its warehouses for a cost of $300,000. For
accounting purposes this cost was capitalized (and not expensed in the
income statement).
• Small tools (original cost of less than $500) with an aggregate cost of $450,000
were sold off for proceeds of $100,000.
• For accounting purposes, the dispositions of the trucks, fixtures, and small
tools resulted in a loss on disposal of assets of $122,000 on the income
statement.
Sales $52,000,000
Cost of sales 32,000,000
Gross profit 20,000,000
Salaries and commissions $3,400,000
Employee bonuses 1,000,000
Employee benefits 933,000
Interest and bank charges 389,000
Amortization 1,100,000
General and administrative 3,450,000
Advertising and promotion 3,900,000
Legal and accounting 220,000
Loss on disposal of assets 122,000
Travel 8,000
Allowance for doubtful accounts 200,000
Total expenses 14,722,000
Net income for accounting purposes $ 5,278,000
Determine Deco’s business income for tax purposes for the 2021
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