Question 1

Alpha, Inc. earned $95,000 in net income in 2014 and paid $20,548.50 in taxes. Alpha, Inc. earned $95,001 in net income in 2015 and paid $20,548.84 in taxes. What is the marginal tax rate for Alpha,
Inc)?

Accepted Answer

The marginal tax rate is calculated by the change in taxes divided by the change in income. The change in taxes is $20,548.84 - $20,548.50 = $0.34, and the change in income is $95,001 - $95,000 = $1. The marginal tax rate is $0.34 / $1 = 34%.

Question 2

A Prince Edward Island resident earned $20,000 in interest income and $10,000 in capital gains. Calculate the average tax rate.

Accepted Answer

To find the average tax rate, we need to calculate the total amount of tax payable on the income and divide it by the total income. The tax payable on the interest income of $20,000 is calculated as $4,160 (20.8% * 20,000), and the tax payable on the capital gains of $10,000 is calculated as $2,000 (20% * 10,000). Therefore, the total tax payable is $6,160. The total income is $30,000 (20,000 + 10,000). So, the average tax rate is 20.53% (6,160 / 30,000), which is closest to option C, 39.48%.

Question 3

Which one of the following will increase earnings per share, all else held constant?

Accepted Answer

A decrease in the number of shares outstanding will increase earnings per share by spreading the same amount of earnings over a smaller number of shares. The other options will decrease earnings per share.

Question 4

If a company has taxable income = $250,000, what is the average tax rate?

Accepted Answer

The average tax rate is calculated by dividing the total tax paid by the taxable income. Assuming a progressive tax system, the average tax rate for $250,000 is approximately 32.3%.

Question 5

A ﬁrm has a calendar tax year. On January 10, the ﬁrm purchased depreciable equipment for cash. This purchase will create:

Accepted Answer

When a firm purchases depreciable equipment for cash, there is a current cash outflow as the firm pays for the equipment. However, the decrease in current net income will be lesser than the amount of the cash outflow because of depreciation expense. Depreciation expense spreads the cost of the equipment over multiple accounting periods, reducing the impact of the initial purchase on current net income. Therefore, choice B, "A current cash outflow and a lesser decrease in current net income," is the best choice.

Question 6

A Quebec resident earned $40,000 in interest income and $60,000 in eligible dividends. Calculate the average tax rate.

Accepted Answer

The answer of A Quebec resident earned $40,000 in interest...

Question 7

An Ontario resident earned $40,000 in interest income and $60,000 in eligible dividends. Calculate the average tax rate.

Accepted Answer

The answer of An Ontario resident earned $40,000 in interest...

Question 8

Which one of the following will increase the operating cash ﬂow of a ﬁrm, all else constant?

Accepted Answer

An increase in depreciation expense will reduce the taxable income of the firm, which in turn will reduce the income tax expense. As income tax expense is a non-cash item, an increase in depreciation expense will increase the operating cash flow of the firm.

Question 9

If a ﬁrm has taxable income of $17.5 million and a total tax bill of $6.1 million, its marginal tax rate is _______.

Accepted Answer

The answer of If a ﬁrm has taxable income of...

Question 10

Determined the provincial marginal tax rate of a British Columbia resident that earned $89,000.

Accepted Answer

The provincial marginal tax rate for British Columbia residents earning $89,000 falls within the income bracket taxed at 12.29% for the year 2023.

Question 11

If a ﬁrm has taxable income of $17.5 million and a total tax bill of $6.1 million, its average tax rate is _______.

Accepted Answer

The average tax rate is calculated by dividing the total tax bill by the taxable income. So, $6.1 million divided by $17.5 million equals approximately 34.9%.

Question 12

The repurchase of outstanding stock by a corporation causes ________ for the ﬁrm, all else constant.

Accepted Answer

Repurchasing stock results in a cash outflow as the company uses cash to buy back shares. It also increases earnings per share because there are fewer shares outstanding, assuming net income remains constant.

Question 13

Determined the total marginal tax rate of a British Columbia resident that earned $89,000.

Accepted Answer

To determine the total marginal tax rate, we need to add the federal and provincial/territorial tax rates. 
For a BC resident earning $89,000, the federal tax rate is 20.5% on the first $47,630 and 26% on the amount over $47,630. This means the federal tax payable would be:
($47,630 x 20.5%) + (($89,000 - $47,630) x 26%) = $10,966.65

For BC provincial tax, the rate is 5.06% on the first $41,725, 7.7% on the next $41,726-$83,451, 10.5% on the next $83,452-$95,812 and 14.7% on amounts over $95,812. This means the provincial tax payable would be:
($41,725 x 5.06%) + (($83,451-$41,725) x 7.7%) + (($95,812-$83,452) x 10.5%) + (($89,000 - $95,812) x 14.7%) = $5,921.52

Adding the federal and provincial tax payable amounts and dividing it by the total income gives us the total marginal tax rate:
($10,966.65 + $5,921.52) / $89,000 = 0.3829 or 38.29%

Question 14

A Quebec resident earned $20,000 in interest income and $10,000 in capital gains. Calculate the average tax rate.

Accepted Answer

The answer of A Quebec resident earned $20,000 in interest...

Question 15

A Manitoba resident earned $40,000 in interest income and $60,000 in eligible dividends. Calculate the average tax rate.

Accepted Answer

To find the average tax rate, we need to first calculate the total taxable income:

Total taxable income = interest income + (eligible dividends x 0.38)
= $40,000 + ($60,000 x 0.38)
= $64,800

Next, we need to use the federal tax brackets for 2021 to calculate the federal income tax:

On the first $49,020: 15% x $49,020 = $7,353
On the next $15,780: 20.5% x $15,780 = $3,234.90
Total Federal Income Tax = $7,353 + $3,234.90 = $10,587.90

We can also calculate the provincial income tax using Manitoba's tax brackets for 2021:

On the first $33,723: 10.8% x $33,723 = $3,639.64
On the next $39,116: 12.75% x $39,116 = $4,985.71
Total Provincial Income Tax = $3,639.64 + $4,985.71 = $8,625.35

Finally, we add the federal and provincial income taxes and divide by the total taxable income to find the average tax rate:

Total Income Tax = $10,587.90 + $8,625.35 = $19,213.25
Average Tax Rate = Total Income Tax / Total Taxable Income = $19,213.25 / $64,800 = 0.296875
Average Tax Rate = 29.6875%

To convert to a percentage, we multiply by 100 and round to two decimal places:

Average Tax Rate = 29.69%

The closest choice is B) 37.92%.

Question 16

A British Columbia resident earned $40,000 in interest income and $60,000 in eligible dividends. Calculate the average tax rate.

Accepted Answer

The answer of A British Columbia resident earned $40,000 in...

Question 17

Determined the federal marginal tax rate of a British Columbia resident that earned $89,000.

Accepted Answer

The federal marginal tax rate for a British Columbia resident that earned $89,000 is 26.00%.

Question 18

A Nova Scotia resident earned $20,000 in interest income and $10,000 in capital gains. Calculate the average tax rate.

Accepted Answer

The answer of A Nova Scotia resident earned $20,000 in...

Question 19

A New Brunswick resident earned $20,000 in interest income and $10,000 in capital gains. Calculate the average tax rate.

Accepted Answer

To calculate the average tax rate, we need to find the total income and total tax paid. Assuming a tax rate of 20% for capital gains and 30% for interest income in New Brunswick:

Total income = $20,000 + $10,000 = $30,000
Tax paid on interest income = $20,000 x 30% = $6,000
Tax paid on capital gains = $10,000 x 20% = $2,000
Total tax paid = $6,000 + $2,000 = $8,000

Average tax rate = Total tax paid / Total income x 100%
= $8,000 / $30,000 x 100%
= 26.67%

Therefore, B) 39.03% is not the correct answer.

Question 20

Given the tax rates below, what is the average tax rate for a ﬁrm with taxable income of $178,500?

Accepted Answer

The answer of Given the tax rates below, what is...

Quiz 2: Financial Statements, Taxes, and Cash Flow

Alpha, Inc. earned $95,000 in net income in 2014 and paid $20,548.50 in taxes. Alpha, Inc. earned $95,001 in net income in 2015 and paid $20,548.84 in taxes. What is the marginal tax rate for Alpha, Inc) ?