Quiz #6

Question 1

Fellows Inc. follows IFRS and has established a defined benefit pension plan for employees. Pertinent details for the current year ended December 31 are as follows:

Fair value of plan assets as at January 1, Year 5: $550,000
Contribution by Fellows to the trustee on March 31, Year 5: $120,000
Benefits paid to retirees on October 1, Year 5: $53,000
Discount rate used by actuary: 7%
Which one of the following is the expected interest income on plan assets for the year ended December 31, Year 5?

a) $33,128
b) $37,818
c) $43,190
d) $43,873

Answer 1

Option d) is correct. This calculation correctly pro-rates the benefits paid to retirees and contributions made by the employer for the year: [$550,000 + ($120,000 × 9/12) – ($53,000 × 3/12)] × 7% = $43,873.

Question 2

Question 2 (1 point)

Superior Inc. grants 10,000 stock options to employees on January 1, Year 3. The following information relates to the options:

The options have a vesting period of two years and a fair value of $5 each.
At December 31, Year 3, it was expected that 80% of the options would vest.
At December 31, Year 4, 75% of the options vested.
Superior Inc. follows IFRS and has a December 31 year end.

Which one of the following is the compensation expense related to the options in Year 4?

a) $17,500
b) $18,750
c) $25,000
d) $37,500

Answer 2

Option b) is incorrect. This does not account for the change in estimate in vesting rates from Year 3 to Year 4. Incorrect calculation: 10,000 × $5 × 75% / 2 years = $18,750. Option a) is correct. The total compensation expense related to the options = 10,000 × $5 × 75% or $37,500. In Year 3, $20,000 was recognized (10,000 × $5 × 80% / 2). The remainder recognized in Year 4 is therefore $17,500 ($37,500 – $20,000).

Question 3

On January 1, Year 1, Rider Corp. issued share appreciation rights (SARs) to its management with a value of $5,000. The SARs will be cash settled and were correctly recorded at the grant date. Rider reports under IFRS.

Which one of the following is the correct journal entry to derecognize the SARs, assuming that they expire and NO payout is made?

a) Dr. SAR liability $5,000
Cr. Contributed surplus $5,000

b) Dr. Compensation expense $5,000
Cr. SAR liability $5,000

c) Dr. SAR liability $5,000
Cr. Compensation expense $5,000

d) Dr. SAR liability $5,000
Cr. Cash $5,000

Answer 3

Option b) is incorrect. This is to recognize the SAR, not to derecognize it. Option c) is correct. The compensation expense that has been overstated in previous years is reversed in the current year.

Question 4

Question 4 (1 point)

Bridge Inc., a public company, earned $100,000 in business income for the taxation year ending December 31, 2023.

Which one of the following is the filing deadline for Bridge’s tax return?

a) February 29, 2024
b) March 31, 2024
c) April 30, 2024
d) June 30, 2024

Question 5

Question 5 (1 point)

Which one of the following describes a taxable benefit that will be included in an employee’s tax return?

a) The employee uses a company car for business purposes.

b) The employee is a senior accountant with a public accounting firm, and the firm pays for the employee’s CPA membership dues.

c) The employee has a loan from their employer at a rate that is below the prescribed rate but pays the interest within 30 days of the end of the calendar year.

d) The employee receives a plaque and gift basket from a local spa that is worth $100.

Answer 5

Option c) is correct. Any benefit that an employee receives as a result of an interest-free or low-interest loan because of employment must be included in the employee’s employment income.

Question 6

Question 6 (1 point)

Janice is self-employed. Janice’s spouse, John, is a teacher.

Under which one of the following scenarios will Janice or John incur interest or penalties?

a) Janice files her personal tax return on June 1.

b) Janice pays her taxes owing on April 30.

c) John files his personal tax return on May 15.

d) John pays his taxes owing on June 15.

Answer 6

Option d) is correct. Regardless of whether a person (or their spouse) is self-employed, their taxes are due on April 30. John will incur interest if he pays his personal taxes owing on June 15.

Question 7

Question 7 (1 point)

Nemat, 35, is a recently divorced mother with custody of her two children, Jahan (eight years old) and Kaihan (six years old). In the current year, Nemat earned employment income of $90,000 and has paid the maximum Canada Pension Plan (CPP) and Employment Insurance (EI) contributions of $3,754 (including an enhanced CPP contribution of $631) and $1,002, respectively.

How much federal non-refundable tax credit can Nemat deduct from her taxes payable in the current year?

a) $3,074
b) $3,169
c) $5,324
d) $5,419

Answer 7

Option b) is incorrect. The eligible dependent amount of $15,000 was not included in the calculation. In addition, the enhanced CPP contribution of $631 (2023) is a deduction in computing net income, so it is not included in the basis for the CPP tax credit. Incorrect calculation: $15,000 personal amount + $1,368 Canada employment amount + $3,754 CPP + $1,002 EI = $21,124 × 15% = $3,169. Option c) is correct.
Personal amount $15,000
Eligible dependent amount 15,000
Canada employment amount 1,368
CPP: $3,754 – $631 3,123
EI 1,002
Total $35,493
Rate 15%
Reduction $ 5,324

Question 8

Question 8 (1 point) Saved
Which one of the following is a criterion that the Canada Revenue Agency (CRA) considers in assessing whether an individual is an employee or a contractor?
a) Who determines the method of payment?
b) Does the individual have any close family ties to senior management?
c) Has the individual incorporated?
d) With whom does the chance of profit / risk of loss rest?

Answer 8

Option d) is correct. An employer will usually bear all chance of profit / risk of loss, as an employee will be paid irrespective of whether the employer is paid for work. As a result, this is a criterion that the CRA considers in assessing whether an individual is an employee or a contractor

Question 9

Question 9 (1 point) Saved
Cal received the following as part of his remuneration in 2023:
Salary of $105,000
Bonus of $5,000 relating to his 2022 performance review
Sales commissions of $3,500 based on sales made in December 2022 Director fees of $2,000 for participating on a board for a not-for-profit organization
How much is Cal’s employment income for 2023?
a) $107,000
b) $112,000
c) $113,500
d) $115,500

Answer 9

Option c) is incorrect. This amount excludes the director fees. Fees received for sitting on a board of directors are included in employment income, as a board member is considered to hold an “office.” Incorrect calculation: $105,000 + $5,000 + $3,500 = $113,500. Option d) is correct. All the amounts are included in employment income, and they are all taxable in the year in which they are received: $105,000 + $5,000 + $3,500 + $2,000 = $115,500.

Question 10

Question 10 (1 point) Saved
On May 1, 2023, Derry moved from Sarnia, Ontario, to Castlegar, British Columbia, to start a job with Grigor Inc. As a result of the move, Grigor provided Derry with a $6,000 moving allowance. Derry spent $4,900 on eligible moving expenses in his move from Sarnia to Castlegar. As part of its compensation package, Grigor pays for premiums on life insurance policies for all employees, and the company paid $800 for
Derry’s premiums in 2023.

How much does Derry’s 2023 employment income increase as a result of these employment benefits?
$1,900 b) $5,700
c) $6,000
d) $6,800

Answer 10

Option a) is incorrect. Moving expenses are not a deduction from employment income; rather, they are included in “other deductions.” Incorrect calculation: $6,000 – $4,900 + $800 = $1,900. Option d) is correct. The moving allowance and group term life insurance premiums are included in employment income: $6,000 + $800 = $6,800.

Question 11

Question 11 (1 point)
Kay uses an employer-provided automobile for her travels. During 2023, she drove 28,000 kilometres for work and 6,000 kilometres for personal use. The company leased her automobile on January 1, 2023, for $649 per month, including HST, and paid all operating costs. The automobile was available to her for the entire year. If the vehicle had been purchased, it would have cost a total of $35,000, including HST.

How much is the total standby charge that will be included in Kay’s 2023 tax return?

$1,113
$1,557
c) $5,192
d) $8,400

Question 12

Question 12 (1 point)
Paint Co., a publicly traded corporation, compensates key management with stock options.
On January 2, 2022, Manju was granted options to purchase up to 1,000 shares for $35 each; Paint’s shares were trading for $34 each at this time. On March 31, 2023, Manju exercised her options and purchased 1,000 shares; Paint’s shares were trading for $42 each at this time.
Which one of the following is the impact on Manju’s taxable income of the options exercised in 2023?
Increase of $3,500 b) Increase of $4,000
c) Increase of $7,000
d) Increase of $8,000

Question 13

Question 13 (1 point)
Juliet is an employee of a Canadian public company.
In April 2023, Juliet received an option to purchase 1,000 common shares of her employer at $30 per share when the shares were worth $19 per share. In December of the same year, when the fair market value of the shares was $40 per share, Juliet exercised her options.
In January of 2024, Juliet sold 100% of her shares for $48 per share.
Which one of the following is the employment benefit included in Juliet’s employment income for 2023 related to the stock option?
$5,000
$10,000
c) $14,000
d) $18,000

Question 14

Question 14 (1 point)
Baylor Corp. earns $5,000 and pays a combined provincial and federal corporate tax rate of approximately 15% on this amount. Baylor pays all of its after-tax income to its shareholder, Hans. There is a dividend gross-up of 13% and a combined provincial and federal dividend tax credit of 87% of the gross-up. Hans’s personal tax rate is 42%.

How much taxable income will be earned by Hans related to the dividend?
a) $3,277
b) $4,250
c) $4,803
d) $5,650

Question 15

Question 15 (1 point)
Matilda owns two rental properties, both of which were acquired three years ago. The following information for the two properties for the current year has been provided:
Property I Property II
Revenue $ 33,000 $ 26,200
Expenses 24,600 29,100
Net rental income $ 8,400 $ (2,900)

Maximum capital cost allowance (CCA) claim $ 6,400 $ 7,600
How much net rental income or loss will be included in Matilda’s personal tax return for the current year?
$(8,500)
$(900)
c) $0
d) $2,000

Question 16

Question 16 (1 point)
When a taxpayer sells a rental property comprising land and building, which one of the following describes the capital gains or losses that must be claimed?
Capital gains must be claimed on both the land and building, and capital losses a) cannot be claimed.
b) Neither capital gains nor capital losses can be claimed.
c) Capital gains must be claimed on both the land and building, and capital losses can be claimed on the land only.
d) Capital gains and capital losses must be claimed on both the land and building.

Question 17

Question 17 (1 point)
During the year, Ken and Helga were divorced. The divorce agreement states that Ken is to pay Helga $2,000 per month in spousal support and $2,500 per month in child support, beginning April 1 of the current year.

How much can Ken deduct from his taxable income in the current year?
a) $0
b) $18,000
c) $22,500
d) $40,500

Question 18

Question 18 (1 point)
Langdon received $8,492 in Old Age Security (OAS) payments throughout the taxation year. His net income for the year was calculated as $102,000, and his taxable income was $99,550.

How much will Landgon’s OAS clawback be?

$1,896
$2,263

c) $2,548

d) $8,492

Question 19

Question 19 (1 point)
In the current year, Marjorie retired from her managerial position at Franck Inc. and received a retiring allowance of $75,000. She had been working continuously at the company since 1987. Franck does NOT sponsor and has never sponsored a pension or deferred profit-sharing plan for its employees. Marjorie would like to transfer the maximum amount of the retiring allowance possible immediately to her Registered Retirement Savings Plan (RRSP) on a tax-free basis.

How much of the retiring allowance will Marjorie be able to transfer to her RRSP on a tax-free basis?

$18,000 b) $21,000
c) $22,000
d) $24,500

Question 20

Question 20 (1 point)
Marnie plans to purchase a 10-year annuity with pre-tax payments to her of $2,466 at the end of each year. The cost of the annuity is $20,000. She is uncertain whether she will use funds directly from her Registered Retirement Income Fund (RRIF) or funds directly from her non-registered investments to purchase the annuity.

If Marnie uses the funds from her non-registered investments to purchase the annuity, how much of the annuity payments will be taxable each year?
$0
$466
c) $2,000
d) $2,466

Question 21

Question 21 (1 point)
George and Nils have two children: Melody, who was six years old at the end of the current year, and George Jr., who was nine years old at the end of the current year. Both George and Nils are employed, and their only source of income is employment income. George and Nils earned employment income of $19,350 and $138,600, respectively, in the current year. Child care expenses paid in the current year were $9,200 and $5,600, respectively, for Melody and George Jr.

Which one of the following is the maximum child care expense deduction that may be claimed in the current year for the two children?
$10,000 b) $12,900
c) $13,000
d) $14,800

Question 22

Question 22 (1 point)
In the current year, Sami realized a taxable capital gain on the sale of qualified small business corporation (QSBC) shares of $140,000 and a taxable capital gain of $45,000 on disposal of public company shares, and also claimed a net capital loss carryover of $55,000 in the current year.

Which one of the following is the annual gains limit Sami would use when determining his lifetime capital gains deduction for the current year?

$130,000 b) $140,000
c) $185,000
d) $485,595

Question 23

Question 23 (1 point)
Jin experienced a downturn in his piano-tuning business during the past year, and his tax return showed a non-capital loss of $28,000. Jin paid personal tax in the five previous years.

Which one of the following is the maximum number of years that Jin can carry back the non-capital loss of $28,000?

One previous year

Two previous years
b)

c) Three previous years

d) Five previous years

Question 24

Question 24 (1 point)
In 2023, Bunny made charitable donations of $20,100. Her taxable income has been correctly determined as $255,000.

Which one of the following is the maximum federal charitable donation tax credit Bunny may claim in determining her federal income tax payable for 2023?
a) $5,801
b) $6,574
c) $6,597
d) $6,632

Question 25

Question 25 (1 point)
For the 2023 taxation year, Brenda had net taxable income of $82,249 from employment, including $1,449 taxable eligible dividends from investment in public company shares.

Which one of the following is the correct amount of Brenda’s federal income tax payable for the year?
a) $11,253
b) $11,340
c) $11,471
d) $14,188