Question 1

Two investor corporations may not enter jointly into which of the following?&#10;A)Joint venture&#10;B)Partnership&#10;C)Separate corporation&#10;D)Proprietorship

Accepted Answer

Two investor corporations cannot enter into a proprietorship because it is owned and run by a single individual, not a corporation. A joint venture, partnership, or separate corporation are all options for two investor corporations to enter into.

Question 2

Which of the following is not considered to be a separate entity for tax purposes in Canada?&#10;A)An individual&#10;B)A proprietorship&#10;C)A corporation&#10;D)A trust

Accepted Answer

Proprietorship is not a separate legal entity for tax purposes in Canada, unlike corporations and trusts. Income from a proprietorship is taxed as the personal income of the owner.

Question 3

ABC Corporation is in a 25% income tax bracket.John Adams is an employee at ABC and is in a 40% tax bracket.The company has offered John a 10% pay raise.His current salary is $50,000.
Required:

A)Calculate the after-tax cost of the raise to the corporation.
B)Calculate the after-tax value of the raise for John.
Show all calculations.

A)After-tax cost to ABC: ($50,000 * 10%)* (1 - .25)= $3,750
B)After-tax value for John: ($50,000 * 10%)* (1 - .4)= $3,000

Accepted Answer

A)After-tax cost to ABC: ($50,000 * 10%)* (1 - .25)= $3,750&#10;B)After-tax value for John: ($50,000 * 10%)* (1 - .4)= $3,000

Question 4

Income tax is calculated for which of the following jurisdictional groups?&#10;A)Municipal, provincial, and federal&#10;B)Municipal, federal, and international&#10;C)Provincial, federal, and international&#10;D)Municipal, provincial, and international

Accepted Answer

Income tax is calculated on provincial, federal, and international levels. Municipalities do not usually have the authority to impose income taxes.

Question 5

Which of the following statements is true?&#10;A)Dividends paid by a corporation are deductible by that corporation and are a form of property income for the recipient.&#10;B)Dividends paid by a corporation are deductible by that corporation and are a form of business income for the recipient.&#10;C)Dividends paid by a corporation are not deductible by that corporation and are a form of business income for the recipient.&#10;D)Dividends paid by a corporation are not deductible by that corporation and are a form of property income for the recipient.

Accepted Answer

Dividends paid by a corporation are not deductible by that corporation and are a form of property income for the recipient. This is because dividends are payments made to shareholders out of the corporation's after-tax profits and are not considered an expense of the corporation. As a result, dividends are not tax-deductible for the corporation but are taxable as property income for the recipient.

Question 6

When assessing the value of a corporation,the most relevant information that decision-makers normally consider is&#10;A)the potential for before-tax profits.&#10;B)the potential for after-tax profits.&#10;C)the current corporate tax rate.&#10;D)cash flow before-tax.

Accepted Answer

Decision-makers typically consider the potential for after-tax profits when assessing the value of a corporation because this takes into account the impact of taxes on the profitability of the company. A corporation may have high before-tax profits, but if its tax burden is also high, then its after-tax profits may not be as strong. Therefore, the potential for after-tax profits is the most relevant information in determining the value of a corporation.

Question 7

The text book lists four fundamental tax variables which a manager needs to consider when making business decisions.These variables are: 1)primary types of income; 2)entities subject to taxation on income; 3)alternative forms of business and investing structures used by taxable entities structure; and 4)tax jurisdictions.List the relevant variables within these four categories.

Accepted Answer

The answer of The text book lists four fundamental tax...

Question 8

Which of the following statements is false?&#10;A)Cash flow should be calculated on an after-tax basis.&#10;B)The tax cost to a business should not be regarded as a cost of doing business.&#10;C)Income tax should be considered a controllable cost.&#10;D)The value of an enterprise should not be based on pre-tax cash flow.

Accepted Answer

The tax cost to a business is definitely a cost of doing business and should be taken into consideration while calculating profits and making investment decisions.

Question 9

Which of the following attitudes and actions will help decision-makers develop an efficient approach to taxation?&#10;A)Cash flows should be considered from a before-tax perspective when making decisions.&#10;B)Functional managers should not be held responsible for the tax effects of decisions within their divisions.&#10;C)Tax costs to a business should be regarded as controllable expenses, much like product costs and selling costs.&#10;D)All managers should own a copy of the Income Tax Act.

Accepted Answer

Considering tax costs as controllable expenses will encourage decision-makers to explore ways to minimize these costs and develop an efficient approach to taxation. A before-tax perspective may not provide a complete picture of the financial impact of a decision, while not holding functional managers responsible for tax effects may lead to a lack of accountability. While it can be helpful for managers to have access to the Income Tax Act, it is not necessarily required for developing an efficient approach to taxation.

Question 10

Explain what is meant by the statement that 'tax should be treated as a 'controllable cost''.

Accepted Answer

The answer of Explain what is meant by the statement...

Deck 1: Taxation-Its Role in Decision Making