Homework answers / question archive / Athabasca University, Athabasca - TAXX 301 ch6 1)For a CCPC that is eligible for a small business? deduction, ________? is/are effectively subject to a lower tax rate than the prevailing corporate rate

Athabasca University, Athabasca - TAXX 301 ch6 1)For a CCPC that is eligible for a small business? deduction, ________? is/are effectively subject to a lower tax rate than the prevailing corporate rate

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Athabasca University, Athabasca - TAXX 301

ch6

1)For a CCPC that is eligible for a small business? deduction, ________? is/are effectively subject to a lower tax rate than the prevailing corporate rate.

A. business income

B. dividend income

C. property income

D. business AND property income

2. When a property that contains land and a building that is subject to CCA is disposed? of, ________.

A. capital gains cannot be realized on the sale

B. capital gains and terminal losses cannot be realized on the same sale

C. terminal losses cannot be realized on the sale

D. capital gains and terminal losses can be realized on the same sale

3. Which of the following would be considered by the Canada Revenue Agency? (CRA) to be business income rather than property income or capital? gains?

A. Profit from the sale of assets that were used to produce business income.

B. Profit from the sale of securities held in an investment portfolio.

C. Profit from the sale of assets that were used to produce property income.

D. Profit from the sale of inventory.

4.   is a proprietor who owns a small retail shop that sells clothing. The company pays ?$ for a shirt and later sells it for ?$. The company will recognize ?$ of? ________.

A. net property income

B. net employment income

C. net business income

D. net capital gain

5. Sam is an individual taxpayer who is employed by a large retail company. Sam also works some nights and weekends as a contractor installing carpet for homeowners. The profit Sam earns from installing carpets is considered? ________.

A. employment income

B. business income

C. property income

D. capital gain

 

 

 

6.  Which of the following is allowed as a business deduction for income tax? purposes?

A. Capital cost allowance calculated for? goodwill, purchased in the current year

B. Contingent liabilities

C. Amortization for? goodwill, in the current? year, as recorded per generally accepted accounting principles

D. Personal expenses of a proprietor

7. In determining whether an activity is a hobby or business? activity, which of the following considerations would be most important in making that? distinction?

A. The length of time the taxpayer has been conducting the transactions.

B. Whether the taxpayer conducted the activity with the expectation of earning a profit.

C. The amount of time and effort the taxpayer expends to generate income.

D. The number and frequency of similar transactions.

8. Which of the following amounts would NOT be considered a? "reasonable" deduction in accordance with ITA 67 and ITA? 67.1?

A. A salary of ?$33,000 paid to the business? owner's daughter for janitorial? services, an unrelated janitor would be paid a salary of ?$45,000

B. 50?% of business meal expenses

C. 50?% of season hockey tickets used to entertain business clients

D. A salary of ?$63,000 paid to the business? owner's son for administrative? services, an unrelated administrative assistant would be paid a salary of ?$39,000

9. Which of the following is not allowed as a business deduction for income tax? purposes?

A. Life insurance for a? proprietor, which is a required condition for the business bank loan

B. Interest expense on a business bank loan

C. Depreciation

D. Capital Cost Allowance? (CCA)

10. According to the Income Tax? Act, which of the following items is the starting point for computing net business income for tax? purposes?

A. Sales revenue less cost of goods sold

B. Net income for a business computed using generally accepted accounting principles? (GAAP)

C. Net income for a business as reported on the previous? year's income tax return

D. Gross sales revenues

 

 

 

11. Which of the following statements is true of? reserves?

A. Reserves apply only to GAAP accounting and are not deductible in computing business income for tax purposes.

B. Reserves apply only to calculating business income for tax purposes and are not deductible in computing GAAP income.

C. Only reserves that are specifically identified in the Income Tax Act can be deducted in computing net business income for tax purposes.

D. Any reserve that can be deducted from GAAP income can also be deducted when computing business income for tax purposes.

12. Generally? speaking, expenses that are deductible against net business income for tax purposes? ________.

A. must be related to activities that are legal in nature

B. are highly? limited, and? therefore, rarely used

C. are only those expenses specified within the Income Tax Act

D. must be incurred for the purpose of generating business income

13. Under the provisions of the Income Tax? Act, only one half of the cost of business? ________ can be deducted against taxable business income.

A. interest

B. entertainment and meals

C. auto allowances

D. political contributions

14. A work space in the home deduction is available when the space in question? ________.

A. is used occasionally to conduct business

B. is an? individual's principal place of business

C. is used partially for the purpose of earning income

D. is an office or commercial building

15. Which of the following is a disallowed business expense pursuant to Section 19 of the Income Tax? Act?

A. Use of recreational facilities and dues

B. Expenses incurred to earn income that is exempt from income tax

C. Political contributions to a federal political party

D. Advertising expenses paid to foreign media and directed to the Canadian market

 

 

16. Which of the following entity types is taxable separately from its? owners?

A. partnership

B. proprietorship

C. corporation

D. individual

17. Which of the following is NOT an allowable business reserve in accordance with ITA? 12?

A. Reserve for amounts? (accounts) receivable

B. Reserve for undelivered goods or services

C. Reserve for inventory impairment

D. Reserve for doubtful debts

18. ?________ income applies only to individual? taxpayers, NOT corporations.

A. Business

B. Property

C. Passive

D. Employment

19. Which of the following types of income is generally considered passive? income?

A. capital gains realized on the disposition of assets

B. income from employment

C. income from ordinary business operations

D. income earned from holding property

20. Which of the following transaction types will result in a permanent difference between GAAP income and net taxable income for a? corporation?

A. revenues received prior to the delivery of goods

B. expenses incurred for office supplies

C. estimated warranty costs

D. expenses incurred for business meals

21. Under the? ITA, when computing net business income of a? corporation, ________.

A. reserves that are allowable in computing GAAP income are also allowable in computing net business income

B. significantly more reserves may be deducted than are allowable under GAAP

C. only specifically identified reserves are allowed

D. no reserves are? allowed, only actual? expenses/losses are allowed

22. When taxpayers engage in illegal? activities, ________.

A. the illegal activities are NOT considered a business and therefore revenues must be included in the? taxpayer's income as property income

B. revenues from illegal activities must be included in a taxpayers? income, and related expenses are deductible from business income

C. the illegal activities are NOT considered a business and therefore revenues are NOT included in a? taxpayer's net income

D. revenues from illegal activities must be included in a taxpayers? income, but related expenses are deductible since they are considered illegal payments

23. ?________ are deductible to determine GAAP income but are NOT deductible to calculate Net Income for Tax Purposes.

A. Automobile mileage payments to employees

B. Political contributions

C. The costs of entertaining a? company's customers

D. Luxury automobile costs

24. CDX Company has a group of potential customers visit its office in BC. Management from CDX takes the customers out for dinner in the evening. The total bill for the meal is $260. How much of this expenditure is deductible for determining GAAP? income, and how much is deductible in determining Net Income for Tax? Purposes?

A. $130 for? GAAP, $130 for Net Income for Tax Purposes

B. $260 for? GAAP, $130 for Net Income for Tax Purposes

C.  $260 for? GAAP, $260 for Net Income for Tax Purposes

D.  $130 for? GAAP, $260 for Net Income for Tax Purposes

25. ?________ is NOT an allowable method of determining inventory cost for tax purposes.

A. Specific identification

B. LIFO

C. FIFO

D. The retail method

26. When a company leases an? automobile, ________.

A. the lease payments are fully deductible in computing Net Income for Tax Purposes

B. the ITA limits the amount of the lease payments that are deductible

C. the lease payments are deductible for GAAP but? non-deductible in determining Net Income for Tax Purposes

D. the ITA requires that the transaction be treated as a purchase of the auto if it is assumed the company will take ownership of the auto at the end of the lease

27. When an existing company incurs expenses to issue new? shares, for tax? purposes, the expenses? ________.

A. must be capitalized and deducted as CCA

B. are fully deductible in the year they are incurred

C. are treated as an item of capital rather than expense

D. must be deducted over a period of 5 years

28. Austin Miller  is the sole shareholder Miller of  Enterprises? Ltd., a small retail shop selling locally made arts and crafts. The shop has been in operation for several years and has a calendar fiscal year. Miller provides you with the Income Statement for the corporation for December? 31, 2020.

 

29. If a corporation enters into a? long-term lease agreement on a particular? property, and intends to take ownership of the property at the end of the lease? term, how is the lease accounted for GAAP and tax? purposes?

A. The lease will be accounted for as a lease for GAAP purposes and as a purchase of the property for tax purposes.

B. The lease will be accounted for as a purchase of the property for GAAP AND tax purposes.

C. The lease will be accounted for as a lease for GAAP AND tax purposes.

D. The lease will be accounted for as a purchase of the property for GAAP purposes and as a lease for tax purposes.

 

30. In determining Net Income for Tax? Purposes, which of the following capital expenditures can be deducted entirely in the year of the? expenditure, rather than being recovered through? CCA?

A. prepaid expenses

B. purchases of passenger autos that are not considered? "luxury"

C. costs paid to landscape a? company's property

D. the purchase of certain manufacturing equipment specified within the ITA

31. Which of the following is the MOST important criteria to determine whether an asset is capital or? non-capital in the hands of a? corporation?

Choose the correct answer.

A. whether the asset is used by the corporation to produce business or property income

B. whether or not the estimated useful life of the asset is more than 1 year

C. what the ordinary business operations of the corporation are

D. the total cost of the asset relative to other assets held by the corporation

32. Consider the example of an automobile. In which of the following situations would the sale of an auto result in business? income?

A. An individual sells a car that had been used as a personal vehicle for more than he paid for it.

B. An auto dealership sells a new car from its inventory for more than the original purchase price to a manufacturing company. The car will be used as a company car for the? manufacturer's salesforce.

C. A taxi company purchases a car that is used as a taxi cab and later sells the car for more than the original purchase price.

D. A manufacturing company sells a car that had been used for its traveling salesforce for a price greater than the original purchase price.

33. XYZ Company is a retail store whose only business operations are the sales of apparel. Which of the following asset transactions will result in a capital? loss?

A. XYZ makes an investment in the shares of M? corp, which is a restaurant franchise. The shares are later sold for less than the original purchase price.

B. XYZ replaces its display fixtures with newer? fixtures, and sells the old fixtures to a smaller business for less than the XYZ originally paid for them.

C. XYZ puts some seasonal apparel on clearance and sells a pair of shorts for less than the cost of the shorts.

D. ?XYZ's building catches fire and is destroyed. The insurer of the building gives XYZ less money for the claim than the original purchase price of the building.

 

 

 

34. Which of the following items would be added to a? corporation's GAAP income to determine Net Income for Tax? Purposes?

A. terminal losses

B. CCA that exceeds GAAP amortization

C. a federal income tax refund

D. ?50% of business meals and entertainment

35. ?________ are generally not favourable entities from a tax standpoint as they do not qualify for the small business deduction NOR general rate reduction.

A. Personal services corporations

B. Professional corporations

C. Management companies

D. Large CCPCs

36. If a company has significant Net Income for Tax Purposes for the year and decides to purchase a significant amount of new depreciable? equipment, ________.

A. the purchase will likely create capital gains that will offset the value of any excess of CCA deductions that exceed GAAP amortization

B. the GAAP amortization taken on the equipment will most likely exceed the CCA? deduction, and create an unfavourable tax deduction

C. the CCA taken on the equipment will most likely exceed the GAAP? amortization, and create a favourable tax deduction

D. the GAAP amortization taken on the equipment will be similar and there will most likely be no tax consequence to consider

37. Payments made by corporations to third parties at the discretion of the taxpayer are? ________.

A. taxable to the taxpayer

B. taxable to the taxpayer if the third party is related to the taxpayer

C. taxable to the taxpayer if they are? non-taxable to the third party

D. taxable to the taxpayer if they are for the benefit of the taxpayer

38. If a Canadian property management company owns several apartment? complexes, the rents received from tenants would be considered? ________.

A. property income

B. capital gains

C. business income

D. employment income