QuestionAnswered step-by-stepU 6Question 1 (1 point)Andrew operates an unincorporated business that manufactures small exercise equipment. He is not too keen on keeping detailed financial records but tries his best to be as organized as possible so that he can file accurate tax returns each year. He would like to eventually pass on the business to his 25-year-old daughter who has recently started to actively manage the business with him.Which of the following statements is a benefit to keeping Andrew’s business unincorporated?Question 1 options:a)An unincorporated business will allow more flexibility with succession of the business to his daughter.b)An unincorporated business will allow Andrew to save taxes when he eventually transitions the ownership of the business to his daughter.c)An unincorporated business will allow him to more effectively split income with his daughter as salary payments can be made.d)An unincorporated business will require less paperwork.Question 2 (1 point)Sarah owns 100% of the shares of Ethan Consulting Ltd. (ECL), which has a December 31 year end. Each year, she pays for some of her personal expenses using her corporate credit card. These amounts are charged to Sarah’s shareholder loan account during the year, and Sarah clears out this balance immediately before year end. The balance in Sarah’s shareholder loan account is $24,000 at the end of the current year. Sarah’s marginal tax rate is 40% and she has contributed the maximum Canada Pension Plan (CPP) required for the year. She always ensures that tax is withheld from her salary payouts from ECL using her marginal tax rate.Which of the following statements is true?Question 2 options:a)To clear out the shareholder loan account, Sarah should receive $24,000 in additional salary at the end of the year. This amount should be included on her T4 slip.b)To clear out the shareholder loan account, Sarah should receive a taxable dividend of $24,000 at year end and include $24,000 in dividend income on her personal tax return.c)To clear out the shareholder loan account, Sarah should receive $40,000 in additional salary at the end of the year. This amount should be included on her T4 slip.d)Sarah must include imputed interest benefit on the shareholder loan amount accumulated during the year.Question 3 (1 point)Owen operates an unincorporated business that manufactures hypoallergenic plush toys that are popular with babies. The business generates about $75,000 of taxable income annually and is expected to remain at that level for the next few years. Owen’s wife earns about $75,000 in employment income and is in the same marginal tax bracket as Owen. The couple have two children, ages eight and 12. They have no other sources of income. Owen estimates that the family’s annual living costs are about $90,000, which includes $2,000 of charitable donations. He is considering the possibility of incorporating the business.Which of the following statements is a benefit of incorporating Owen’s business?Question 3 options:a)Incorporation will allow Owen to split income with his wife for tax savings.b)Incorporation will allow Owen to pay dividends to his children.c)Incorporation will allow Owen to defer the payment of taxes as the family does not need all the income earned to cover their living expenses.d)Incorporation will allow Owen to obtain a larger benefit from the charitable donations if they are deducted in the corporation instead of being claimed personally.Question 4 (1 point)Which of the following statements regarding the benefit of using the quick method for goods and services tax (GST) is true?Question 4 options:a)The customers will benefit from having to pay a lower rate of GST.b)The supplier may be able to claim input tax credits (ITCs) on greater types of expenditures.c)The supplier does not need to keep detailed records of GST paid on capital expenditures.d)The supplier’s use of the quick method may result in tax savings for the supplier.Question 5 (1 point)Arthur is a lawyer running a consulting business as a sole practitioner. His revenue each year is approximately $300,000. Starting next year, he would like to switch to a simpler method for his goods and services tax (GST) filing to reduce the amount of paperwork.Which of the following statements is true?Question 5 options:a)Arthur can start to use the simplified input tax credit (ITC) method as taxable supplies made this year is less than $1,000,000.b)Arthur can start to use the quick method as annual taxable supplies this year is less than $400,000.c)Arthur may file an election to use the simplified ITC method as taxable supplies made this year is less than $1,000,000.d)Arthur does not qualify to use the quick method as his annual taxable supplies is greater than the $200,000 limit.Question 6 (1 point)Arrow Co. and Ball Co. are goods and services tax (GST) registrants. Arrow purchased inventory from a manufacturer for a cost of $500. Arrow sold the inventory to a retailer, Ball, for $2,000. Ball sold the inventory to a consumer for $3,000. All amounts are before sales tax.Which of the following statements is true?Question 6 options:a)Arrow is required to remit $25 of GST.b)Arrow is required to remit $75 of GST.c)Ball is required to remit $150 of GST.d)The consumer may claim a GST refund of $150.Question 7 (1 point)A personal income tax client of a CPA firm has decided to set up a small business selling semi-precious gemstones, beads, and jewelry-making supplies. The estimated sales for the first year of operations are $25,000. Therefore, the business does not have to collect and remit goods and services tax (GST) to the Canada Revenue Agency (CRA).What is the advantage to the client of registering for a GST account before the store’s annual sales reach $30,000?Question 7 options:a)The business income will be taxed at a lower rate.b)The business can charge GST and not have to remit the GST collected to the CRA.c)The business can recover GST paid on qualifying purchases, including startup costs.d)The business will receive priority treatment in dealing with the CRA.Question 8 (1 point)Beach & Sand, a proprietorship selling taxable supplies in Canada, is not registered for GST. When will Beach & Sand be required to register?Question 8 options:a)Beach & Sand is not required to register for GST because it is a proprietorship.b)Beach & Sand has cumulative sales of more than $30,000 in the previous four calendar quarters.c)The calendar year after the proprietorship has annual sales over $30,000.d)When the net income of the business exceeds $30,000Question 9 (1 point)Which of the following statements regarding instalments for GST/HST payments is trueQuestion 9 options:a)Instalments are not required by quarterly filers even if their GST/HST payable for the preceding reporting period is $3,000 or more.b)Monthly instalments are required for annual filers whose GST/HST payable for the preceding reporting period is $3,000 or more.c)Taxpayers required to pay GST/HST instalments may choose to calculate the instalments as four equal instalments of 25% of the net tax from the previous year. However, if the actual GST/HST payment for the current year is determined to be greater than the instalments paid, there will be instalment interest charges.d)For annual filers with a calendar year end, GST/HST instalments are due on March 31, June 30, September 30, and December 31.Question 10 (1 point)The following income statement was prepared for Machine Ltd., which is located in Ontario, where the HST rate is 13%. All amounts are net of any HST collected or paid. The company sells only fully taxable goods and services.Sales $16,000,000Expenses: Purchases (cost of goods sold (COGS)) $10,000,000Amortization of equipment 1,000,000Salaries and wages 3,500,000Office expenses 50,000Total expenses excluding HST $14,550,000 Net income $ 1,450,000The company also purchased computer equipment during the year for $33,900, including HST. This computer equipment is used entirely in the business.Which of the following is the HST payable for Machine for the year?Question 10 options:a)$314,600b)$643,500c)$769,600d)$769,093Question 11 (1 point)On January 1, Year 1, Chuck started a landscaping and snow removal business in Alberta as a sole proprietor. Sales of taxable supplies per quarter for Year 1 and Year 2 are as follows:January 1 to March 31, Year 1 $ 7,500April 1 to June 30, Year 1 6,900July 1 to August 31, Year 1 4,800September 1 to December 31, Year 1 3,900January 1 to March 31, Year 2 10,800April 1 to June 30, Year 2 11,600July 1 to August 31, Year 2 2,300September 1 to December 31, Year 2 4,900Which of the following statements regarding GST is true?Question 11 options:a)As Chuck is engaged in a commercial activity, he must become a GST registrant on January 1, Year 1.b)Chuck ceases to be considered a small supplier on June 30, Year 2.c)Chuck will be required to formally register for GST by August 1, Year 2.d)Chuck ceases to be a small supplier on July 31, Year 2.Question 12 (1 point)Which of the following items is considered an exempt supply for GST purposes?Question 12 options:a)Legal and accounting feesb)Basic groceriesc)Music lessonsd)Medical devicesQuestion 13 (1 point)Jamal started a business selling refurbished smartphones on January 1, Year 1. His sales are summarized in the following chart:Sales by quarter graphWhat is the last quarter that Jamal will be considered a small supplier for GST?Question 13 options:a)Quarter 1b)Quarter 2c)Quarter 3d)Quarter 4Question 14 (1 point)Which of the following statements regarding GST is true?Question 14 options:a)GST paid on club membership fees is subject to a 50% restriction when claiming input tax credits (ITCs).b)For a partnership, it is the individual partners who are ultimately liable for GST collected on taxable supplies.c)A taxable supply includes supplies that are taxed at the rate of 5% and supplies that are zero-rated.d)If an individual ceases to be a small supplier on March 31 of the year as a result of meeting the four calendar quarter test, they are required to begin collecting GST on April 1 of the year.Question 15 (1 point)Business intelligence (BI) is a significant area of innovation within the Canada Revenue Agency (CRA).Which of the following statements regarding how the CRA is currently using BI is true?Question 15 options:a)The CRA is currently unable to perform compliance risk analysis with the support of BI.b)The CRA will be unable to use BI to assist taxpayers by providing pre-populated returns due to confidentiality issues.c)The CRA can only examine data once the year-end tax return is filed.d)Despite improvements in software and BI, corporations are still required to file a tax return.Question 16 (1 point)Which of the following is not a factor affecting the decision to remunerate a shareholder manager of a corporation with salary versus dividends?Question 16 options:a)The shareholder manager’s personal tax rateb)A shareholder loan in the corporation in a debit positionc)Whether the shareholder manager wishes to collect Canada Pension Plan (CPP) benefits when they retired)The shareholder manager’s desire to contribute to a Registered retirement savings plan (RRSP)Question 17 (1 point)The purpose of the system of integration is to avoid double taxation of income earned in a corporation and paid out to shareholders of the corporation by way of dividends.Which of the following statements is true?Question 17 options:a)Businesses will incorporate because more deductions are permitted when calculating business income in a corporation.b)Under the system of integration, the grossed-up dividend is intended to represent corporate after-tax income.c)Under the system of integration, the federal dividend tax credit is intended to represent all tax already paid on the income in the corporation.d)Whether there is an advantage or a disadvantage to incorporation depends on the province the business operates in due to variations in the provincial dividend tax and tax credit rates.Question 18 (1 point)Which of the following is a tax advantage of incorporating a small business in Canada?Question 18 options:a)Potential tax deferralb)The potential to pay a salary to a spousec)More deductions can be claimed in determining net business income in a corporation compared to net business income of a proprietorship.d)The potential to personally claim corporate lossesQuestion 19 (1 point)Which of the following items regarding COVID-19 will have a direct impact on personal tax returns for 2020?Question 19 options:a)Filing and payment deadlines are unchangedb)Canada Emergency Response Benefit (CERB)c)Canada Emergency Wage Subsidy (CEWS)d)The determination of taxable income for individuals, other than CERB, will be adjustedQuestion 20 (1 point)Which of the following statements regarding goods and services tax (GST) registration and filing is true?Question 20 options:a)A business with annual revenues from taxable supplies under $50,000 is not required to register for GST.b)A GST registrant is required to remain registered for GST for at least one year before it may cancel its registration.c)A sole proprietor cannot register for GST.d)A GST registrant with sales from taxable supplies in excess of $2,000,000 is permitted to file annual GST returns.Question 21 (1 point)Randy MacLean is the sole shareholder and manager of RM Consulting Ltd. (RM). RM has a June 30 fiscal year end. On July 1, 2020, Randy borrowed $50,000 from RM to purchase a motor home for his personal use. Randy did not pay RM any interest on the loan. Randy repaid the full $50,000 amount of the loan on July 1, 2022.Which of the following statements regarding the impact on Randy’s taxable income as a result of the loan is true?Question 21 options:a)Randy will have to include $50,000 in his 2020 income, and he will be permitted a deduction in 2022 for the $50,000 repayment.b)Randy will have to include $50,000 in his 2020 income. Randy will also have to include imputed interest benefits on the loan in his income for each of 2020, 2021, and 2022. He will be permitted a deduction in 2022 for the $50,000 repayment.c)Randy will have to include $50,000 in his 2022 income. Randy will also have to include imputed interest benefits on the loan in his income for each of 2020, 2021, and 2022.d)Randy will have to include $50,000 in his 2020 income. Randy will not be permitted a deduction in 2022 for the $50,000 repayment because the repayment was not made prior to the June 30, 2022, year end of RM.Question 22 (1 point)In which of the following situations would the shareholder be required to include some or all of the principal amount of the loan in their income?Question 22 options:a)Gerry Wells owns 1% of the shares of Western Canadian Bank. He is not an employee of the bank. Gerry borrowed $150,000 from the bank to purchase a lakefront cottage. Because of his shareholdings, Gerry was able to negotiate an interest rate of 2.25% on the loan, which was slightly below the market rate at the time. The loan is repayable over a five-year period.b)Jack Grewal is an employee of BC Holdings Ltd. (BC) and he also owns 5% of BC’s outstanding shares. BC recently opened a new branch in Saskatchewan, and Jack relocated to Regina to manage the new branch. To assist with the relocation, BC loaned Jack $120,000 to purchase a home for himself and his family. No interest was charged on the loan. Jack is required to repay the loan evenly over the next five years.c)On January 1, Year 2, Sarah Gordon borrowed $100,000 from Fort Inc. (Fort), a company with a December 31 year end. Fort is an oilfield servicing company that is controlled by her brother. Sarah is an employee of Fort and owns 15% of the shares. The purpose of the loan was to make investments in shares of a new company that Sarah has incorporated. Loans of this type are not made to other employees. The loan is being repaid evenly each year on December 31 until December 31, Year 6. Fort has a December 31 year end.d)Aaron Zhang is the sole shareholder of Acme Industrial Co. (Acme). The company has a December 31 year end. On January 1, Year 2, Aaron borrowed $35,000 from Acme. The full $35,000 was repaid on January 2, Year 3.Question 23 (1 point)Bob owns all the shares of Xanadu Co. and is also an employee of Xanadu. Bob received a five-year loan from Xanadu and signed a loan agreement. The loan has reasonable repayment terms and similar loans have been made to other employees.In which one of the following situations is Bob required to include the loan in his income?Question 23 options:a)The loan proceeds are used to acquire a personal residence.b)The loan proceeds are used to acquire treasury shares in Xanadu.c)The loan proceeds are used to acquire an automobile that will be used by Bob in performing employment duties.d)The loan proceeds are used to purchase investments.Question 24 (1 point)Mark owns 100% of the shares of Kent Co., which has a March 31 year end. On February 1, 2021, Mark borrowed $40,000 from Kent to go on an extended vacation around the world. There was no interest payable on the loan. It is now July, 2022, and the loan is expected to be fully repaid on December 31, 2022. Assume that the Canada Revenue Agency (CRA) prescribed rate throughout the period is 1%.Which of the following statements regarding the impact that the loan will have on Mark’s taxable income is true?Question 24 options:a)There is no taxable income impact in 2021 and there is a taxable income inclusion in 2022 of $40,000.b)There is a taxable income inclusion in 2021 of $40,000, and there is a $40,000 deduction from taxable income in 2022 when the loan is repaid.c)There is no taxable income impact in either 2021 or 2022.d)There is a taxable income inclusion in 2021 of $40,000 and there is a $40,000 deduction from taxable income in 2022.Question 25 (1 point)Jennifer and her husband, John, each own 50% of the shares of Jiminee Ltd. (JL). Because they are in the retail industry, they chose a year end of January 31 when sales are slow. On March 3, 2021, John borrowed $30,000 from the company in order to buy a boat. There was no interest payable on the loan. On February 1, 2022, John was able to repay the loan in full using cash from dividends he received from the company. Assume that the Canada Revenue Agency (CRA) prescribed rate throughout the period was 1%.Based on the information provided, which of the following statements is true?Question 25 options:a)John must deduct $30,000 from his 2022 income.b)John must include $30,000 in his 2021 income.c)John must include $250 in his 2021 income.d)John must include $300 in his 2021 income.LawSocial ScienceTax lawACCT 3211Share Question
