University of California, Los Angeles - COMM 232 Quiz 6 Question1)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

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University of California, Los Angeles - COMM 232

Quiz 6

Question1)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?

Question 1 options:

1)	Business income of $23,600.

2)	A capital gain of $1,500.

3)	A capital gain of $3,000 and business income of $20,600.

4)	A capital gain of $23,600.

Question 2

Which of the following would be considered by the CRA to be business income rather than property income or capital gains?

Question 2 options:

1)	Profits from the sale of assets that were used to produce business income

2)	Profit from the sale of assets that were used to produce property income

3)	Profit from the sale of inventory items

4)	Both A and C

Question 3

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:

Question 3 options:

1)	An allowable capital loss of $2,500

2)	An allowable capital loss of $3,500

3)	A net business loss of $5,000

4)	A net business loss of $7,000

Question 4

Which of the following statements is NOT correct?

Question 4 options:

1)	In determining property income, the deduction of CCA cannot be used to create or increase a loss.

2)	Both business and property income are subject to the income attribution rules.

3)	In determining business income, the deduction of CCA can be used to create or increase a loss.

4)	Travel expenses cannot be deducted against property income.

Question 5

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?

Question 5 options:

1)	The length of time the asset is held.

2)	Whether the transaction is related to the taxpayer’s business.

3)	The number and frequency of similar asset dispositions.

4)	Whether the transaction resulted in a gain or loss.

Question 6

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?

Question 6 options:

1)	Jerry has a taxable capital gain of $26,350.

2)	Jerry has a taxable capital gain of 13,175.

3)	Jerry has business income of $26,350.

4)	Because the collection was a hobby, the gain does not have to be included in Net Income For Tax Purposes.

Question 7

Which of the following is correct?

Question 7 options:

1)	In determining whether a disposition is capital or business in nature, the number and frequency of transactions is taken into account.

2)	A taxpayer must include 50 percent of both business income and capital gains in their Taxable Income.

3)	Amounts collected under an insurance policy are considered capital gains.

4)	The sale of a depreciable asset can result in a capital gain or capital loss.

Question 8

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:

Question 8 options:

1)	property income.

2)	business income.

3)	a capital gain.

4)	a taxable capital gain.

Question 9

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

Question 9 options:

1)	A reserve that is deducted in the current taxation year, must be added back to income in the following taxation year.

2)	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.

3)	Amounts received for goods to be delivered in the future must be included in the determination of net business income for tax purposes.

4)	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.

Question 10

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:

Question 10 options:

1)	included in revenue when the goods or services are delivered.

2)	included in revenue no later than 180 days after the end of the taxation year.

3)	allocated to revenue over the period between the time the cash is received and the time the goods and services are delivered.

4)	included in revenue when the cash is received.

Question 11

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:

Question 11 options:

1)

$24,300.

2)

$30,300.

3)

$31,000.

4)

$31,300.

Question 12

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:

Question 12 options:

1)

$12,500.

2)

$11,000.

3)

$13,000.

4)

$14,000.

Question 13

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?

Question 13 options:

1)

$2,000.

2)

$4,000.

3)

$6,000.

4)	None of the above.

Question 14

Myrle Cocco owns a car that she uses both in her business and for personal use. The cost of the car was $28,000 and, on January 1, 2017, the UCC for the vehicle (it is the only asset in 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?

Question 14 options:

1)

$10,239.

2)

$ 9,906.

3)

$17,292.

4)

$10,949.

Question 15

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

Question 15 options:

1)	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.

2)	The cost of advertising on a U.S. television station that is attempting to attract customers in Florida.

3)	Fees paid to the business owner’s wife for keeping the accounting records of the business.

4)	Parking fines incurred by delivery vehicles making deliveries in congested areas.

Question 16

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

Question 16 options:

1)	The life insurance policy is required as security on a loan from a financial institution.

2)	The interest payable on the loan for which the life insurance is required is deductible by X Co. for tax purposes.

3)	The premium paid is for insurance on the president of X Co.

4)	Both A and B.

Question 17

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?

Question 17 options:

1)

Nil.

2)

$25,000.

3)

$33,000.

4)

$65,000.

Question 18

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?

Question 18 options:

1)	Jon can only deduct a pro rata share of operating costs and utilities.

2)	Jon can only deduct a pro rata share of operating costs, utilities, and property taxes.

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

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

Question 19

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:

Question 19 options:

1)	Business deduction of $4,318 and a taxable benefit of $0.

2)	Business deduction of $5,182 and a taxable benefit of $0.

3)	Business deduction of $9,500 and taxable benefit of $7,300.

4)	Business deduction of $9,500 and taxable benefit of $7,800.

Question 20

Jean Brochet uses an automobile in his unincorporated business. It cost $53,000 in 2016, with maximum CCA being deducted in that year. The purchase was financed with a bank loan of $37,000. For 2017, the interest on this loan was $4,440. The automobile is used exclusively for business purposes, with the 2017 operating costs totaling $7,500. In determining his 2017 business income, his maximum automobile related deduction will be:

Question 20 options:

1)

$18,800.

2)

$19,590.

3)

$24,665.

4)

$20,150.

Question 21

Which of the following expenses would be denied as a deduction under the Income Tax Act?

Question 21 options:

1)	A speeding ticket received by a truck delivering goods for resale.

2)	The costs of disability related building modifications,

3)	Work space in a home costs for a self-employed contractor.

4)	A reserve for doubtful accounts

Question 22

Antonio Capellini is a successful self-employed accountant. He meets all of his clients in his office in the basement of his home. The office is 800 square feet and the house is 3,000 square feet. Antonio incurred the following costs during the current year:
Business liability insurance                           $ 400
House insurance                                               880
House utilities                                                    2,600
House repairs and maintenance                3,000
Mortgage interest                                           5,700
Property tax                                                       1,600
Office supplies                                                  760
What is the amount of the expenses deductible from Antonio’s business income?

Question 22 options:

1)

$1,160

2)

$2,888

3)

$3,675

4)

$4,835

Question 23

Kyle purchased a large lot on a lake in anticipation of building his home there within 3 years. During the current year, Kyle paid $650 in property taxes and $2,500 of interest on the demand loan he obtained to purchase the lot. January to March he rented out the lot to a local snowmobile club for $1,500. Which of the following statements is correct?

Question 23 options:

1)	Kyle cannot deduct any of the property taxes or interest paid for the vacant lot.

2)	Kyle can deduct the $650 of property taxes paid, but none of the interest paid.

3)	Kyle can deduct the $650 of property taxes paid and $850 of the interest paid.

4)	Kyle can deduct all of the property taxes and interest paid.

Question 24

Tomas began his unincorporated business on January 1, 2017. During 2017, he received $40,000 cash in revenues and paid $33,000 for operating expenses. On December 31, 2017 one of his customers owed him $1,200 and Tomas owed one of his suppliers $2,300. In addition to the operating expenses, Tomas can also deduct one-third of his house costs since he operates his business out of the ground floor of his rented 3-storey home. Total house costs for 2017 were: rent of $19,200; insurance of $800; utilities of $2,100. Tomas’ maximum work space in the home expense deduction for 2017 is:

Question 24 options:

1)

$5,900.

2)

$7,000.

3)

$7,100.

4)

$7,367.

Question 25

Busy Company incurred the following meal costs during 2017:
Meals with Clients:
                Cost of clients’ and employees’ meals                  $10,000
                Gratuities (tips)                                                 1,500     $11,500
Company Christmas Party                                                             4,100
Management Dinner Meetings                                                  1,800
Family Picnic (Management only)                                             1,200
Meal allowances paid to employees during eligible business travel
                (100 days @ $51 per day)                                             5,100
Total                                                                                                      $23,700
The total deductible meal expense for tax purposes is:

Question 25 options:

1)

$11,100

2)

$11,850

3)

$13,300

4)

$13,900

Question 26

888 Company leased a car throughout 2017 for $950 per month, $75 of which was for insurance. There was no down payment or refundable deposit. The manufacturer’s suggested list price for the car is $38,000. Other costs incurred for the vehicle during 2017 were $1,600 for gas and $420 for repairs.
The maximum tax deduction for 2017 vehicle expenses is:

Question 26 options:

1)

$11,753

2)

$12,653

3)

$12,672

4)

$13,420

Question 27

With respect to deductions in the determination of net business income for tax purposes, which of the following statements is correct?

Question 27 options:

1)	A corporation can deduct the costs of issuing new common shares in the year in which the shares are issued.

2)	Any premium on the sale of new debt securities by a corporation is amortized over the life of the securities.

3)	Cost of sales can be determined using inventory valuation based on either replacement cost or net realizable value.

4)	Landscaping costs are deductible in the year that they are accrued.

Question 28

For tax purposes, the cost of the end of period inventory can be determined in a variety of ways. Which of the following approaches CANNOT be used?

Question 28 options:

1)	Last-In, First-Out.

2)	First-In, First-Out.

3)	Specific Identification.

4)	Average Cost.

Question 29

Which of the following items is NOT deductible in calculating net business income for the current taxation year?

Question 29 options:

1)	An $11,000 legal fee paid for services rendered in conjunction with a new issue of the company’s common stock.

2)	A $125,000 management bonus paid 125 days after the end of the corporation’s current taxation year.

3)	An amount of $25,000 paid for planting large maple trees in various locations on the grounds of the company’s facilities.

4)	A $10,000 contribution to a company pension fund.

Question 30

Which of the following business expenses is deductible for tax purposes?

Question 30 options:

1)	$25 late filing penalty charged by CRA.

2)	$50 speeding ticket incurred while delivering goods to a customer.

3)	$15 late payment interest charged by utility company.

4)	$20 late payment interest charged by CRA.

Question 31

Which of the following is a deductible expense for an unincorporated business?

Question 31 options:

1)	Donation made to the United Way.

2)	Contribution made to the Federal Green Party.

3)	Estimated cost of providing warranty services in future taxation years.

4)	Reasonable salary paid to a relative.

Question 32

Old Time Company purchased a Class 10 truck many years ago for $8,000. The truck has now become a collectors’ item and was sold on August 1, 2017 for $10,000. The net book value on that date was $500 and the Class 10 UCC balance was $11,525. There are other assets left in the class. Accounting net income before tax for the year ended December 31, 2017 was $24,000. Amortization of depreciable capital assets for accounting purposes is equal to the CCA deducted for tax purposes. Net income for tax purposes is:

Question 32 options:

1)

$15,000.

2)

$15,500.

3)

$25,000.

4)

$26,000.

Question 33

Sea Tour Company’s accounting net income for 2017 is $12,200. This includes amortization expense for a boat that was purchased for $28,000 in 2016. The boat is amortized on the straight-line basis over 10 years with no estimated residual value. For tax purposes, it is in Class 7, a declining balance class with a rate of 15 percent. Minimum net income for tax purposes for 2017 is:

Question 33 options:

1)

$11,115.

2)

$11,430.

3)

$15,000.

4)

$8,315.

Question 34

Maria has her own accounting practice in Victoria, B.C. During 2017 she paid $1,650 to attend the following conventions:
•             $400 for a 2 day convention on “Tax issues for the owner/manager” held at Vancouver, B.C.
•             $500 for a 3 day convention on “Attracting new clients” held at Kelowna, B.C.
•             $750 for a 5 day convention on “IFRS implementation” held at Whistler, B.C.
Maria’s total deductible convention expense for tax purposes is:

Question 34 options:

1)

$1,650

2)

$1,250

3)

$1,050

4)

$825

Question 35

Widget Production Ltd. has a fiscal year end of June 30. In February 2015, the Company borrowed $750,000 to fund an expansion. The Company paid $21,000 to obtain this financing. In January 2016, the Company repaid $250,000 of the principal and in June 2017, it repaid the remaining $500,000. All repayments were made from cash flow from operations. For tax purposes, which one of the following schedule of claims represents the most rapid method of claiming the costs of obtaining this financing.

Question 35 options:

1)	$4,200 in each of fiscal 2015 through 2019.

2)	$4,200 in each of 2015 and 2016, and the remaining $12,600 in 2017.

3)	$4,200 in 2015, $8,400 in 2016, and $8,400 in 2017.

4)	$7,000 in 2016 and $14,000 in 2017.

Question 36

Quality Homes Ltd. (Quality) has a December 31, 2017 year end. The controller has calculated the Company’s 2017 income as $50,000. However, in arriving at this amount, the controller deducted $30,000 of salary to an employee who is the sole shareholder of the Company and $5,000 of salary to an arm’s length employee. Both of these amounts were paid on June 30, 2018. Which one of the following represents Quality’s 2017 Net Income For Tax Purposes?

Question 36 options:

1)

$50,000.

2)

$55,000.

3)

$80,000.

4)

$85,000.

Question 37

Mary operates a proprietorship that generated $100,000 in income under GAAP. Included in this amount are:
•             $7,000 of amortization expense;
•             $4,000 for bad debt expense;
•             $112,000 cost of goods sold; and
•             $12,000 meals and entertainment with clients.
Mary’s maximum CCA has been calculated at $10,000 for the year. How much is Mary’s business income for tax purposes?

Question 37 options:

1)

$113,000

2)

$109,000

3)

$107,000

4)

$103,000

Question 38

Jon Avery starts an unincorporated business on December 1, 2017. Which of the following statements is correct with respect to Jon’s taxation year end?

Question 38 options:

1)	Jon must select December 31 as his taxation year end.

2)	Jon must select November 30 as his taxation year end.

3)	Jon can choose any date for his year end. However, if Jon chooses a non-calendar year end he will have to adjust his income by an amount referred to as “additional business income”.

4)	Jon can choose any date for his year end. However, if Jon chooses a non-calendar year end he will have to report income for his first two fiscal years in his 2018 tax return.