Homework answers / question archive / Centennial College - ACCT 256 Quiz Submissions - PRACTISE QUIZ CHAPTER 6 1)The tax rules for determining business income are identical to those used for determining property income   True   False 2

Centennial College - ACCT 256 Quiz Submissions - PRACTISE QUIZ CHAPTER 6 1)The tax rules for determining business income are identical to those used for determining property income   True   False 2

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Centennial College - ACCT 256

Quiz Submissions - PRACTISE QUIZ CHAPTER 6

1)The tax rules for determining business income are identical to those used for determining property income

		True
		False

2.When property acquired for personal use is sold for more than its cost, there will be a taxable capital gain

		True
		False

3.The deduction of CCA cannot be used to create or increase a net business loss.

		True
		False

4.If an asset has been held for a considerable period of time, any gain on its disposition will be treated as business income

		True
		False
Question 5

Differences between business income for tax purposes and business income as determined under GAAP can be either permanent or temporary.

		True
		False
Question 6

When a business makes payments that are unreasonable in the circumstances, they cannot be deducted in the calculation of either accounting Net Income or net business income

		True
		False

7.If a reserve is deducted for accounting purposes, it can also be deducted for tax purposes

		True
		False

8.The amounts charged to income for bad debts on accounts receivable will generally be the same for both tax and accounting purposes.

		True
		False

9.A self-employed individual cannot deduct CCA on a home office in his principal residence unless it is used exclusively for income producing purposes.

		True
		False

10.Landscaping costs can be deducted in the determination of net business income, even if they involve items that would normally be considered capital assets

		True
		False

11.For the hobby farmer, deductible farming losses for a year are restricted to $2,500, plus one-half of the next $30,000.

		True
		False

12.When a business ceases to operate and its inventories are disposed of, a gain on the inventorieswillbetreatedasacapitalgainunlessanelectionismadebythesellingtaxpayer.

		True
		False

13.When a business ceases to operate and its accounts receivable are disposed of with the other business assets, any loss on the receivables will be treated as a capital loss unless a joint election is made by the purchaser and seller

		True
		False

14.During 2017, a depreciable capital asset with a capital cost of $100,000 and a January 1 UCC balance of $79,400, is sold for $103,000. In the accounting records, the asset had a net book value of $83,400. What are the tax consequences of this sale?

	Business income of $23,600
	A capital gain of $1,500.
	A capital gain of $3,000 and business income of $20,600.
	A capital gain of $23,600.
Question 15

Fung Wo purchased vacant land on a remote island off the coast of British Columbia on January 1, 2014 for $50,000. She intended to re-sell it for a profit the next year but due to an oil spill, property values dropped. She was finally able to sell the vacant land for $45,000 on December 31, 2017. In the meantime, she paid property taxes of $500 each year. For 2017 tax purposes, Fung Wo has:

	An allowable capital loss of $2,500
	An allowable capital loss of $3,500
	A net business loss of $5,000
	A net business loss of $7,000

16.In determining whether a gain resulting from a disposition of an asset is capital or business, various criteria have been used. Which of the following considerations would be least likely to affect the decision?

	The length of time the asset is held
	Whether the transaction is related to the taxpayer’s business
	The number and frequency of similar asset dispositions.
	Whether the taxpayer knew the investment could be sold for a profit if the investment return was inadequate
	Whether the transaction resulted in a gain or loss

17.Jerry collects baseball cards as a hobby. During the current year, he acquired twenty-five different items at a total cost of $29,550. During the year, he sold each of those items and received total proceeds of $55,900. What is the effect of these transactions on Jerry’s Net Income For Tax Purposes?

	Jerry has a taxable capital gain of $26,350
	Jerry has a taxable capital gain of 13,175.
	Jerry has business income of $26,350.
	Because the collection was a hobby, the gain does not have to be included in Net Income For Tax Purposes

18.Which of the following is correct?

	In determining whether a disposition is capital or business in nature, the number and frequency of transactions is taken into account.
	A taxpayer must include 50 percent of both business income and capital gains in their Taxable Income.
	Amounts collected under an insurance policy are considered capital gains
	The sale of a depreciable asset can result in a capital gain or capital loss.

19.Marvin purchased a large piece of land 5 years ago when a highway bypass was rumoured to have an exit being built nearby. He had planned to subdivide the land into building lots within 5 years, but has done no work on the land yet. He has rented the land each summer over the Labour Day weekend for $500. A local non-profit organization holds a huge neighbourhood garage sale on that weekend. A heart attack has convinced Marvin to slow down. As a result, he has advertised the land for sale online and an interested buyer is offering to purchase it at a price that would give him a large gain. That gain would be taxed as

	property income
	business income
	a capital gain
	a taxable capital gain

20.With respect to determining net business income for tax purposes, which of the following statements is NOT correct?

	A reserve that is deducted in the current taxation year, must be added back to income in the following taxation year.
	Bad debts written off in the previous year for tax purposes that are recovered in the current year must be added to net business income for tax purposes for the current year
	Amounts received for goods to be delivered in the future must be included in the determination of net business income for tax purposes.
	As long as some part of the proceeds for goods sold is not collectible until future periods, a reserve for uncollected amounts can be deducted.

21.A business may sometimes receive amounts of cash for goods or services to be delivered in a future taxation year. Under the requirements of the Income Tax Act, these amounts should be

	included in revenue when the goods or services are delivered
	included in revenue no later than 180 days after the end of the taxation year
	allocated to revenue over the period between the time the cash is received and the time the goods and services are delivered
	included in revenue when the cash is received.

22.Selected items from Mini Move Inc.’s December 31 audited financial statements are as follows:

                                                       2017                                              2016              Income Statement:

Revenue                                    $200,000                                      $180,000

Income before taxes                $ 30,000                                         $ 25,000

Net Income                              $ 24,000                                         $ 20,000

Balance Sheet:

Accounts Receivable                $12,000                                          $11,000

Accounts Payable                    $ 7,000                                             $ 4,000

Deferred Revenue                     $ 500                                                $ 200

Mini Move's 2017 Net Income for Tax Purposes is:

	$24,300
	$30,300
	$31,000
	$31,300

23.In 2016, Marg’s Antiques deducted a reserve for doubtful debts of $12,000. During 2017, she had actual write-offs of $12,500 and recoveries of previously written off debts of $1,500. At the end of 2017, she deducted a reserve for doubtful debts of $14,000. Marg’s 2017 net deduction for bad debts would be:

	$12,500
	$11,000
	$13,000
	$14,000

24.Ed’s Appliances Ltd (Ed’s) sold a furnace to a customer in October, 2017 for $10,000. The mark-up on the $5,000 cost of the furnace was 100 percent. The customer paid 20 percent of the purchase price on delivery, with the remainder of the purchase price due in March 2018. What is the maximum reserve Ed’s can claim for tax purposes for its November 30, 2017 year end?

	$2,000
	$4,000
	$6,000
	$8,000
	None of the above

25.Myrle Cocco owns a car that she uses both in her business and for personal use. The cost of thecarwas$28,000and,onJanuary1,2017,theUCCforthevehicle(itistheonlyassetin Class 10) was $11,662. During the year she drives the car a total of 42,000 kilometers of which 38,000 were related to her business activities. Her insurance for the year was $950 and her operating costs were $6,500. What is the amount of her maximum deduction for car costs during 2017?

	$10,239
	$ 9,906
	$17,292
	$10,949

26.Which of the following items could NOT be deducted during the current year in the determination of net business income for tax purposes?

	Premiums on a life insurance policy on a business owner's life that is required by the bank that has extended a loan to the business.
	The cost of advertising on a U.S. television station that is attempting to attract customers in Florida
	Fees paid to the business owner's wife for keeping the accounting records of the business.
	Parking fines incurred by delivery vehicles making deliveries in congested areas.

27.For income tax purposes, X Co. can deduct life insurance premiums paid providing:

	The life insurance policy is required as security on a loan from a financial institution.
	The interest payable on the loan for which the life insurance is required is deductible by X Co. for tax purposes
	The premium paid is for insurance on the president of X Co.
	Both A and B.
	All of A, B, and C.

28.Maxine is the proprietor of a home based business. She paid $25,000 to her editorial assistant, $8,000 to her son as her computer technician, and $32,000 to herself as salary. How much can she deduct as a business expense on her income tax return?

	nil
	$25,000
	$33,000
	$65,000

29.Jon Bogen operates a consulting business out of a dedicated space in his home. It is his principal place of business. With respect to the items that he can deduct, which of the following statements is correct?

	Jon can only deduct a pro rata share of operating costs and utilities
	Jon can only deduct a pro rata share of operating costs, utilities, and property taxes
	Jon can only deduct a pro rata share of operating costs, utilities, property taxes, and mortgage interest
	Jon can deduct a pro rata share of operating costs, utilities, property taxes, mortgage interest and CCA.

30.Omar owns and manages an unincorporated business. During 2017, a car which he owns was driven 10,000 kilometers for business purposes and 12,000 kilometers for Omar’s personal use. The total vehicle related expenses for 2017 were as follows: Lease payments $7,200 Insurance 1,000 Other Operating Costs 1,300 For tax purposes, there is a: