Question 1

Canada Revenue Agency,CRA,allows an exemption from double taxation for certain flow through entities where all income produced by the business flows to the investors and virtually no earnings are retained within the business.These entities are called

Accepted Answer

Income Trust Corporations are flow through entities where all income produced by the business flows to the investors and virtually no earnings are retained within the business. The CRA allows an exemption from double taxation for these entities. The other choices, Canadian Federal Crown Corporations, Canadian Controlled Corporations, and Foreign Controlled Corporations, do not necessarily meet the criteria for flow through entities with all income flowing to investors and no earnings retained within the business.

Question 2

Which of the following is/are an advantage(s)of incorporation?

Accepted Answer

All the given options, access to capital markets, limited liability, and unlimited life, are advantages of incorporating a company. Incorporation allows businesses to separate their assets and liabilities from their owners, providing limited liability protection, access to capital markets through the issuance of stocks or bonds, and an unlimited life span, as the business is considered a separate legal entity from its owners.

Question 3

A sole proprietorship is owned by

Accepted Answer

A sole proprietorship is a business owned and operated by one individual. This individual is typically responsible for all aspects of the business, including management, finances, and decision-making. Unlike corporations or partnerships, a sole proprietorship is not a separate legal entity, which means that the owner has unlimited personal liability for any debts or legal issues that arise within the business.

Question 4

In Canada,which of the following organization forms accounts for the greatest number of firms?

Accepted Answer

According to Statistics Canada, approximately 60% of businesses in Canada are sole proprietorships, making it the most common form of organization. Limited Liability Partnerships, Limited Partnerships, and Publicly Traded Corporations make up a significantly smaller portion of Canadian businesses.

Question 5

You own 100 shares of a Canadian Income Trust Corporation.The corporation earns $5.00 per share before taxes.Once the corporation has paid any corporate taxes that are due,it will distribute the rest of its earnings to its shareholders in the form of a dividend.If the corporate tax rate is 40% and your personal tax rate on (both dividend and non-dividend)income is 30%,then how much money is left for you after all taxes have been paid?

Accepted Answer

C) EPS × number of shares × (1 - Individual Tax Rate)
$5.00 per share × 100 shares × (1 - .30) = $350

Question 6

Which of the following statements is most correct?

Accepted Answer

Corporations are subject to more regulations and legal requirements compared to partnerships or sole proprietorships. This is due to their more complicated structure, larger size, and potential impact on the economy.

Question 7

Which of the following organization forms earns the most revenue?

Accepted Answer

Publicly Owned Corporations issue shares to the public, which means thousands of investors from around the world can own a part of the company. Since the corporation is publicly traded, it has the ability to raise significant amounts of capital from the stock market. Therefore, publicly owned corporations earn the most revenue compared to other organization forms. Privately Owned Corporations and Limited Partnerships are restricted with a limited number of investors and cannot raise as much capital as Publicly Owned Corporations. Limited Liability Companies (LLCs) do not issue stock, making them ineligible for the same investors as Publicly Owned Corporations.

Question 8

In Canada,the dividend tax credit gives some relief by

Accepted Answer

The dividend tax credit in Canada effectively gives a lower tax rate on dividend income than on other sources of income. This is because dividends are paid out of after-tax corporate profits, and so the dividend income itself has already been taxed at the corporate level. As a result, the government provides a tax credit to shareholders to offset the double taxation that would otherwise occur. The tax credit varies by province and territory, but generally results in a lower overall tax rate on dividend income than on other sources of income.

Question 9

Which of the following statements regarding limited partnerships is true?

Accepted Answer

A limited partner's liability is limited by the amount of his investment. This means that the limited partner is not personally responsible for the debts and liabilities of the partnership. However, if the limited partner participates in the management of the partnership, his liability may not be limited.

Question 10

Which of the following is/are subject to double taxation in Canada?

Accepted Answer

Only corporations are subject to double taxation in Canada, as they are taxed on their profits at the corporate level and then again on any dividends paid out to shareholders at the personal level. Partnerships and sole proprietorships are not subject to double taxation, as their profits are only taxed at the personal level.

Question 11

In Canada,which of the following business organization forms cannot avoid double taxation?

Accepted Answer

A publicly traded corporation is the only business organization form in Canada that cannot avoid double taxation. This is because they are subject to corporate income tax at the federal and provincial levels, and their shareholders are also subject to personal income tax on any dividends received from the corporation. Limited partnerships, privately owned corporations, and limited liability companies can all avoid double taxation through various means such as flow-through taxation, shareholder agreements, or tax planning strategies.

Question 12

In Canada,a limited liability partnership,LLP,is essentially

Accepted Answer

The answer of In Canada,a limited liability partnership,LLP,is essentially
...

Question 13

Which of the following is NOT an advantage of a sole proprietorship?

Accepted Answer

Limited liability is NOT an advantage of a sole proprietorship. In this type of business, the owner is personally liable for all business debts and legal obligations, which means that their personal assets are at risk.

Question 14

You are a shareholder in a publicly owned corporation.This corporation earns $4 per share before taxes.After it has paid taxes,it will distribute the remainder of its earnings to you as a dividend.The dividend is income to you,so you will then pay taxes on these earnings.The corporate tax rate is 35% and your tax rate on dividend income is 15%.The effective tax rate on your share of the corporations earnings is closest to:

Accepted Answer

C) First the corporation pays taxes. It earned $4 per share, but must pay $4 × .35 = $1.40 to the government in corporate taxes. That leaves $4.00 - $1.40 = $2.60 to distribute to the shareholders. However, the shareholder must pay $2.60 × .15 = $0.39 in income taxes on this amount, leaving only $2.21 to the shareholder after all taxes are paid. The total amount paid in taxes is $1.40 + 0.39 = $1.79. The effective tax rate is then $1.79 ÷ $4 = .4475 or 44.75% which is closest to 45%.

Question 15

One of the major characteristics of a limited liability partnership,LLP,in Canada is

Accepted Answer

One of the major characteristics of an LLP in Canada is that the limitation on a partner's liability is only in cases related to actions of negligence by other partners or those supervised by other partners. This means that if a partner engages in negligent behavior, they may still be held personally liable for any resulting damages. However, they will not be held liable for the actions of other partners or those under their supervision.

Question 16

The person charged with running the corporation by instituting the rules and policies set by the board of directors is called

Accepted Answer

The Chief Executive Officer (CEO) is responsible for overseeing the day-to-day operations of the corporation and implementing the strategic vision set by the board of directors. The CEO is ultimately accountable for the performance of the company and is the highest-ranking officer in the organization.

Question 17

Explain the benefits of incorporation.

Accepted Answer

The answer of Explain the benefits of incorporation....

Question 18

In 2006,the Canadian government effectively neutralized the tax advantages that had existed for most income trusts,relative to firms set up as corporations. The advantages that existed for income trusts prior to these changes were that

Accepted Answer

A) The 2006 changes imposed new taxes on most income trusts to mirror the total tax revenue received from corporations. As a result with no material tax advantage, these firms reverted from income trusts back to a corporate structure. The exception were Real Estate Investment Trusts (REIT) which are exempted from the changes imposed on all other trusts.

Question 19

In Canada,the distinguishing feature of a corporation is that

Accepted Answer

The distinguishing feature of a corporation in Canada is that it is a legally defined, artificial being, separate from its owners. This means that the corporation can own property, enter into contracts, sue and be sued, and incur liabilities separate from its shareholders. This legal separation provides limited liability protection to shareholders, meaning that their personal assets are generally not at risk should the corporation face financial difficulties or legal action.

Question 20

You own 100 shares of a publicly traded Canadian Corporation.The corporation earns $5.00 per share before taxes.Once the corporation has paid any corporate taxes that are due,it will distribute the rest of its earnings to its shareholders in the form of a dividend.If the corporate tax rate is 40% and your personal tax rate on (both dividend and non-dividend)income is 30%,then how much money is left for you after all taxes have been paid?

Accepted Answer

A) EPS × number of shares × (1 - Corporate Tax Rate) × (1 - Individual Tax Rate)
$5.00 per share × 100 shares × (1 - .40) × (1 - .30) = $210

Quiz 1: The Corporation