Unit 1 Quiz
Question 1
In 2024, Chavez Computers Ltd., a public company, replaced some of its office furniture with new furniture that was more modern. The new furniture cost
$120,500. The old furniture that had been purchased in 2018 was sold for $130,000 ($175,000 original cost). Chavez’s Class 8 opening balance was $151,000.
How much is the maximum CCA that may be claimed on this class for 2024?
a) $19,300
b) $27,350
c) $28,300
d) $11,320
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Option c) is correct.
UCC beginning of year $ 151,000
Additions 120,500
Disposals (130,000)
UCC for CCA 141,500
CCA rate × 20%
CCA $ 28,300
Question 2
Nuguse Co. is a Canadian-controlled private corporation (CCPC) with a December 31, 2024, year end. In 2024, Nuguse had the following items included in
accounting net income:
$11,300 in life insurance premiums paid for a policy on the CEO. Nuguse is the beneficiary.
, $6,950 in legal fees paid for the purchase of 25% of the shares of Sandaka Co.
$20,800 in equity income from Sandaka.
Nuguse also received $15,600 in dividends from Sandaka during 2024.
Which one of the following is the net adjustment for the above items to calculate net income for tax purposes (Schedule 1) for 2024?
a) $(2,550)
b) $1,750
c) $6,100
d) $13,050
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Option c) is incorrect. It was determined as follows:
Life insurance premiums $ 11,300
Equity income (20,800)
Dividends received from Sandaka 15,600
Net adjustment $ 6,100
The legal fees incurred to purchase Sandaka shares are not deductible because they are on account of capital. Because they are not deductible, they
should have been added back in the T2SCH1 form. Option d) is correct. It was determined as follows:
Life insurance premiums $ 11,300
Legal fees on purchase of investment in Sandaka 6,950
Equity income (20,800)
, Dividends received from Sandaka 15,600
Net adjustment $ 13,050
The life insurance premiums are not deductible because there is no indication that the life insurance was required as security for financing. For tax
purposes, legal fees incurred to make an investment are added to the cost of the investment; therefore, they are not deductible. Equity income is not
taxable; therefore, it is deducted to arrive at net income for tax purposes. Dividends received on the investment are added back to determine net income
for tax purposes and deducted under Division C from net income to determine taxable income.
Question 3
Reekie Inc. is completing the reconciliation of accounting net income to net income for tax purposes for its taxation year ended December 31, 2024. Net income
for tax purposes after all other adjustments except those noted below has been correctly determined as $639,600. Information required to complete the
reconciliation is as follows:
Reekie provides one-year warranties on the products it manufactures. 2024 information for warranties:
Warranty liability, end of 2023 $ 232,000
Warranty expense reported in the 2024 income statement 234,000
Warranty liability, end of 2024 196,500
In 2023, Reekie sold a capital asset and agreed to collect the proceeds over a three-year period. A capital gains reserve of $26,500 was claimed in 2023. The
maximum reserve that may be claimed in 2024 is $15,300.
How much is Reekie’s net income for tax purposes for 2024?
a) $609,700
b) $615,300
c) $680,700
Question 1
In 2024, Chavez Computers Ltd., a public company, replaced some of its office furniture with new furniture that was more modern. The new furniture cost
$120,500. The old furniture that had been purchased in 2018 was sold for $130,000 ($175,000 original cost). Chavez’s Class 8 opening balance was $151,000.
How much is the maximum CCA that may be claimed on this class for 2024?
a) $19,300
b) $27,350
c) $28,300
d) $11,320
Hide question 1 feedback
Feedback
Option c) is correct.
UCC beginning of year $ 151,000
Additions 120,500
Disposals (130,000)
UCC for CCA 141,500
CCA rate × 20%
CCA $ 28,300
Question 2
Nuguse Co. is a Canadian-controlled private corporation (CCPC) with a December 31, 2024, year end. In 2024, Nuguse had the following items included in
accounting net income:
$11,300 in life insurance premiums paid for a policy on the CEO. Nuguse is the beneficiary.
, $6,950 in legal fees paid for the purchase of 25% of the shares of Sandaka Co.
$20,800 in equity income from Sandaka.
Nuguse also received $15,600 in dividends from Sandaka during 2024.
Which one of the following is the net adjustment for the above items to calculate net income for tax purposes (Schedule 1) for 2024?
a) $(2,550)
b) $1,750
c) $6,100
d) $13,050
Hide question 2 feedback
Feedback
Option c) is incorrect. It was determined as follows:
Life insurance premiums $ 11,300
Equity income (20,800)
Dividends received from Sandaka 15,600
Net adjustment $ 6,100
The legal fees incurred to purchase Sandaka shares are not deductible because they are on account of capital. Because they are not deductible, they
should have been added back in the T2SCH1 form. Option d) is correct. It was determined as follows:
Life insurance premiums $ 11,300
Legal fees on purchase of investment in Sandaka 6,950
Equity income (20,800)
, Dividends received from Sandaka 15,600
Net adjustment $ 13,050
The life insurance premiums are not deductible because there is no indication that the life insurance was required as security for financing. For tax
purposes, legal fees incurred to make an investment are added to the cost of the investment; therefore, they are not deductible. Equity income is not
taxable; therefore, it is deducted to arrive at net income for tax purposes. Dividends received on the investment are added back to determine net income
for tax purposes and deducted under Division C from net income to determine taxable income.
Question 3
Reekie Inc. is completing the reconciliation of accounting net income to net income for tax purposes for its taxation year ended December 31, 2024. Net income
for tax purposes after all other adjustments except those noted below has been correctly determined as $639,600. Information required to complete the
reconciliation is as follows:
Reekie provides one-year warranties on the products it manufactures. 2024 information for warranties:
Warranty liability, end of 2023 $ 232,000
Warranty expense reported in the 2024 income statement 234,000
Warranty liability, end of 2024 196,500
In 2023, Reekie sold a capital asset and agreed to collect the proceeds over a three-year period. A capital gains reserve of $26,500 was claimed in 2023. The
maximum reserve that may be claimed in 2024 is $15,300.
How much is Reekie’s net income for tax purposes for 2024?
a) $609,700
b) $615,300
c) $680,700
