FULL - Elaborated Test Bank for Canadian Income Taxation - Planning and Decision Making By William Buckwold, Joan Kitunen, Matthew Roman & Abraham Iqbal()

FULL - Elaborated Test Bank for Canadian Income Taxation - Planning and Decision Making By William Buckwold, Joan Kitunen, Matthew Roman & Abraham Iqbal() Part 1 A Planning and Decision-Making Approach to Taxation Chapter 1 Taxation-Its Role in Decision Making Chapter 2 Fundamentals of Tax Planning Part 2 An Overview of Income Determination and Tax for the Two Primary Entities Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System Chapter 4 Income from Employment Chapter 5 Income from Business Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property Chapter 7 Income from Property Chapter 8 Gains and Losses on the Disposition of Capital Property-Capital Gains Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable Chapter 11 Corporations-An Introduction Part 3 The Corporate Structure Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations Chapter 13 The Canadian-Controlled Private Corporation Chapter 14 Multiple Corporations and Their Reorganization Part 4 Other Forms of Business Organization Chapter 15 Partnerships Chapter 16 Limited Partnerships and Joint Ventures Chapter 17 Trusts Part 5 Selected Topics Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares Chapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales Chapter 20 Domestic and International Business Expansion Chapter 21 Tax Aspects of Corporate Financing Chapter 22 Introduction to GST/HST Chapter 23 Business Valuations Which of the following is not considered to be a separate entity for tax purposes in Canada? A) An individual B) A proprietorship C) A corporation D) A trust 2) Which of the following attitudes and actions is most likely to help decision-makers develop an efficient approach to taxation? A) Cash flows should be considered from a before-tax perspective when making decisions. B) Functional managers should not be held responsible for the tax effects of decisions within their divisions. C) Tax costs to a business should be regarded as controllable expenses, much like product costs and selling costs. D) All managers should own a copy of the Income Tax Act. 3) Which of the following statements is true? A) Dividends paid by a corporation are deductible by that corporation and are a form of property income for the recipient. B) Dividends paid by a corporation are deductible by that corporation and are a form of business income for the recipient. C) Dividends paid by a corporation are not deductible by that corporation and are a form of business income for the recipient. D) Dividends paid by a corporation are not deductible by that corporation and are a form of property income for the recipient. Version 1 2 4) When assessing the value of a corporation, the most relevant information that decisionmakers normally consider is A) the potential for before-tax profits. B) the potential for after-tax profits. C) the current corporate tax rate. D) cash flow before-tax. 5) Income tax is calculated for which of the following jurisdictional groups? A) Municipal, provincial, and federal B) Municipal, federal, and foreign C) Provincial, federal, and foreign D) Municipal, provincial, and foreign 6) Two investor corporations may not enter jointly into which of the following? A) Joint venture B) Partnership C) Separate corporation D) Proprietorship 7) Which of the following statements is true? Version 1 3 A) Cash flow should never be calculated on an after-tax basis. B) The tax cost to a business should be regarded as a cost of doing business. C) Income tax cannot be treated as a controllable cost. D) The value of an enterprise should be based on pre-tax cash flow. 8) Logan holds a 7% interest-bearing debt instrument in Glow Co. Glow Co.'s tax rate is 27%, and Logan is in a 45% tax bracket. Which of the following statements is correct? A) The after-tax cost of the debt instrument is 5.11% to Glow Co., and the after-tax value to Logan is 3.85%. B) The after-tax cost of the debt instrument is 5.11% to Glow Co., and the after-tax value to Logan is 3.15%. C) The after-tax cost of the debt instrument is 1.89% to Glow Co., and the after-tax value to Logan is 3.15%. D) The after-tax cost of the debt instrument is 7% to Glow Co., and the after-tax value to Logan is 7%. 9) Which of the following lists accurately names the five general income categories for tax purposes? A) Business, Interest, Employment, Capital Gains, Other B) Business, Property, Employment, Capital Gains, Foreign C) Business, Property, Employment, Capital Gains, Other D) Business, Property, Employment, Investments, Other 10) Proprietorships, corporations, partnerships, limited partnerships, joint ventures, and income trusts are all Version 1 4 A) categories of income for tax purposes. B) tax jurisdictions. C) examples of financial instruments. D) forms of business. 11) Which of the following statements regarding taxation within jurisdictions in Canada is true? A) Federal and provincial or territorial tax brackets are always identical to one another. B) Only federal taxes apply to individuals while both federal and provincial or territorial taxes apply to corporations. C) Both federal and provincial or territorial taxes apply to Canadian taxpayers. D) Only federal taxes apply to corporations while both federal and provincial taxes apply to individuals. 12) Jamie is an employee at ABC Ltd. and is in a 45% tax bracket. ABC Ltd. has a tax rate of 27%. The company has offered Jamie a 10% pay raise. Jamie's current salary is $50,000. What is after-tax cost of the raise to ABC Ltd.? A) $1,350 B) $2,750 C) $2,858 D) $3,650 13) Simone is an employee at XYZ Ltd. and is in a 45% tax bracket. XYZ Ltd. has a tax rate of 27%. The company has offered Simone a 10% pay raise. Simone's current salary is $50,000. What is after-tax value of the raise to Simone? Version 1 5 A) $1,350 B) $2,250 C) $2,750 D) $5,000 14) All cash flow must be considered on an after-tax basis because A) companies want a positive cash flow. B) the value to a business must be considered. C) the investor's tax rate is irrelevant. D) decisions that appear favourable on a pre-tax basis may be unfavorable or marginally favourable on an after- tax basis. 15) Which of the following is not a separate entity for tax purposes? A) Corporation B) Trust C) Partnership D) Individual 16) The Canadian income tax system for individuals is considered A) progressive. B) regressive. C) flat. D) unfair. Version 1 6 17) What is the most significant form of taxation that affects return on investment? A) Property Taxes B) Excise Taxes C) Income Taxes D) All taxes 18) QWERTY Co. decides to give a 6% raise to its employee Jean, who is currently in the 40% tax bracket. The company is in the 27% tax bracket. What is the after-tax implication for each of the parties in this transaction? A) The company has a net after-tax cost of 4.38% and Jean has an after-tax income of 3.6%. B) Both Jean and the company have a 3% after-tax cost/benefit. C) We should only consider the pre-tax amount of 6% to each party. D) Both the company and Jean have an after-tax cost of 4.38%. 19) Explain what is meant by the statement that "tax should be treated as a ‘controllable cost'." 20) Blake holds a 5% interest-bearing debt instrument in Day Co. Day Co.'s tax rate is 27%, and Blake is in a 50% tax bracket. Required: A) Calculate the after-tax cost (as a percentage) of the debt-instrument to Day Co. B) Calculate the after-tax value (as a percentage) of Blake's interest income. Version 1 7 21) Tanner holds a 7% interest-bearing debt instrument in Eve Co. Eve Co.'s tax rate is 13%, and Tanner is in a 45% tax bracket. Required: A) Calculate the after-tax cost (as a percentage) of the debt-instrument to Eve Co. B) Calculate the after-tax value (as a percentage) of Tanner's interest income. Version 1 8 Answer Key Version 1 1 CHAPTER 2 1) The CEO at Big Co. has decided to sell a piece of capital equipment after the company's year-end to avoid paying capital gains tax this year. Which tax planning method will the CEO be using? A) Transferring income to another entity B) Shifting income from one time period to another C) Converting the nature of income from one type to another D) This is a form of tax evasion and is not allowed 2) Which of the following scenarios illustrates unacceptable tax planning? A) Property transferred between Stan and Reed (arm's-length parties) is valued at fair market value. B) Mr. A transfers his shares to his spouse, and the dividends from the shares are included in Mr. A's income. C) Faizan owns two corporations and undertakes legal steps in order to permit loss utilization between the two companies. D) Ben transfers property to his child at a value less than fair market value. 3) The controller of Little Company Ltd. has decided to sell a piece of capital equipment after the company's year-end to avoid paying tax on capital gains this year. The controller is engaging in A) tax planning. B) tax avoidance. C) tax evasion. D) GAAR.