Deck 1: Taxationits Role in Decision Making

Question 1

Which of the following attitudes and actions will help decision-makers develop an efficient approach to taxation?

A)Functional managers should not be held responsible for the tax effects of decisions within their divisions.
B)All managers should own a copy of the Income Tax Act.
C)Cash flows should be considered from a before-tax perspective when making decisions.
D)Tax costs to a business should be regarded as controllable expenses, much like product costs and selling costs.

Answer 1

D

Question 2

When assessing the value of a corporation, the most relevant information that decision-makers normally consider is

A)the potential for before-tax profits.
B)cash flow before-tax.
C)the current corporate tax rate.
D)the potential for after-tax profits.

Answer 2

D

Question 3

Which of the following statements is false?

A)Income tax should be considered a controllable cost.
B)The tax cost to a business should not be regarded as a cost of doing business.
C)The value of an enterprise should not be based on pre-tax cash flow.
D)Cash flow should be calculated on an after-tax basis.

Answer 3

B

Question 4

Which of the following statements is true?

A)Dividends are deductible by a corporation and are a form of property income for an individual.
B)Dividends are not deductible by a corporation and are a form of property income for an individual.
C)Dividends are not deductible by a corporation and are a form of business income for an individual.
D)Dividends are deductible by a corporation and are a form of business income for an individual.

Question 5

Two investor corporations may not enter jointly into which of the following?

A)Partnership
B)Joint venture
C)Separate corporation
D)Proprietorship

Question 6

Which of the following is not considered to be a separate entity for tax purposes in Canada?

A)A proprietorship
B)An individual
C)A trust
D)A corporation

Question 7

ABC Corporation is in the 25% income tax bracket. John Adams is an employee at ABC and is in th 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.

Question 8

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

Question 9

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.

Question 10

Income tax is calculated for which of the following jurisdictional groups?

A)Provincial, federal, and international
B)Municipal, provincial, and federal
C)Municipal, federal, and international
D)Municipal, provincial, and international