Alicia Arden has established herself as a very effective sales representative for products related to health care services. While she has worked independently for a number of years, she has received two very attractive offers of employment. Both of these offers would require that she begin work on January 2, 2020.
Offer One
This offer would provide her with a fixed salary of $225,000 per year with no commissions on her sales. The employer would provide an allowance of $30,000 per year to cover hotel, meals, and airline costs. The employer believes that the CRA will consider this allowance to be reasonable in the circumstances. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.
This employer would provide her with an automobile which would be leased at a cost of $850 per month, including a $75 per month payment for insurance. The employer will pay all of the operating costs of the automobile.
This employer would provide her with a $200,000 interest free loan in order to facilitate her investment activities. The loan will have to be repaid after five years.
Offer Two
This offer would provide her with a fixed salary of $175,000 per year, plus a commission on all of her sales. Ms. Arden estimates that for 2020, these commissions will total $85,000. The employer would reimburse her hotel, meal, and airline costs. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.
While this employer will not provide her with an automobile, the business will provide her with an allowance for using her own automobile of $1,500 per month. Ms. Arden estimates that for 2020 the total costs associated with driving her own vehicle will be as follows: Other Information
The following information is applicable to either of the alternative offers.
1. She estimates that her employment related expenses during 2020 would be as follows: 2. Whether it is the employer's automobile or her own personal vehicle, she would use the car throughout 2020. She expects to drive this vehicle a total of 53,000 kilometers during 2020, with 37,000 of these kilometers required by her employment activities.
3. Both offers include a group disability insurance plan for which the company will pay all of the premiums. The plan provides periodic benefits that compensate for lost employment income. This will cost the employer $4,500 per year.
4. Both offers include a $1,000,000 face value life insurance policy. All of the premiums, which will total $3,800 per year, will be paid by the employer.
5. Assume that the prescribed rate is 2 percent throughout 2020.
Required:
A. Based on the estimates made by Ms. Arden, calculate Ms. Arden's minimum 2020 net employment income for each of the two offers. Ignore PST and GST considerations.
B. Discuss the factors that Ms. Arden should consider in deciding between the two alternatives.

Question

Alicia Arden has established herself as a very effective sales representative for products related to health care services. While she has worked independently for a number of years, she has received two very attractive offers of employment. Both of these offers would require that she begin work on January 2, 2020.
Offer One
This offer would provide her with a fixed salary of $225,000 per year with no commissions on her sales. The employer would provide an allowance of $30,000 per year to cover hotel, meals, and airline costs. The employer believes that the CRA will consider this allowance to be reasonable in the circumstances. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.
This employer would provide her with an automobile which would be leased at a cost of $850 per month, including a $75 per month payment for insurance. The employer will pay all of the operating costs of the automobile.
This employer would provide her with a $200,000 interest free loan in order to facilitate her investment activities. The loan will have to be repaid after five years.
Offer Two
This offer would provide her with a fixed salary of $175,000 per year, plus a commission on all of her sales. Ms. Arden estimates that for 2020, these commissions will total $85,000. The employer would reimburse her hotel, meal, and airline costs. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.
While this employer will not provide her with an automobile, the business will provide her with an allowance for using her own automobile of $1,500 per month. Ms. Arden estimates that for 2020 the total costs associated with driving her own vehicle will be as follows:  Other Information
The following information is applicable to either of the alternative offers.
1. She estimates that her employment related expenses during 2020 would be as follows:  2. Whether it is the employer's automobile or her own personal vehicle, she would use the car throughout 2020. She expects to drive this vehicle a total of 53,000 kilometers during 2020, with 37,000 of these kilometers required by her employment activities.
3. Both offers include a group disability insurance plan for which the company will pay all of the premiums. The plan provides periodic benefits that compensate for lost employment income. This will cost the employer $4,500 per year.
4. Both offers include a $1,000,000 face value life insurance policy. All of the premiums, which will total $3,800 per year, will be paid by the employer.
5. Assume that the prescribed rate is 2 percent throughout 2020.
Required:
A. Based on the estimates made by Ms. Arden, calculate Ms. Arden's minimum 2020 net employment income for each of the two offers. Ignore PST and GST considerations.
B. Discuss the factors that Ms. Arden should consider in deciding between the two alternatives.

Quizplus · Accepted Answer

The Answer of Alicia Arden has established herself as a very effective sales representative for products related to health care services. While she has worked independently for a number of years, she has received two very attractive offers of employment. Both of these offers would require that she begin work on January 2, 2020.
Offer One
This offer would provide her with a fixed salary of $225,000 per year with no commissions on her sales. The employer would provide an allowance of $30,000 per year to cover hotel, meals, and airline costs. The employer believes that the CRA will consider this allowance to be reasonable in the circumstances. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.
This employer would provide her with an automobile which would be leased at a cost of $850 per month, including a $75 per month payment for insurance. The employer will pay all of the operating costs of the automobile.
This employer would provide her with a $200,000 interest free loan in order to facilitate her investment activities. The loan will have to be repaid after five years.
Offer Two
This offer would provide her with a fixed salary of $175,000 per year, plus a commission on all of her sales. Ms. Arden estimates that for 2020, these commissions will total $85,000. The employer would reimburse her hotel, meal, and airline costs. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.
While this employer will not provide her with an automobile, the business will provide her with an allowance for using her own automobile of $1,500 per month. Ms. Arden estimates that for 2020 the total costs associated with driving her own vehicle will be as follows:  Other Information
The following information is applicable to either of the alternative offers.
1. She estimates that her employment related expenses during 2020 would be as follows:  2. Whether it is the employer's automobile or her own personal vehicle, she would use the car throughout 2020. She expects to drive this vehicle a total of 53,000 kilometers during 2020, with 37,000 of these kilometers required by her employment activities.
3. Both offers include a group disability insurance plan for which the company will pay all of the premiums. The plan provides periodic benefits that compensate for lost employment income. This will cost the employer $4,500 per year.
4. Both offers include a $1,000,000 face value life insurance policy. All of the premiums, which will total $3,800 per year, will be paid by the employer.
5. Assume that the prescribed rate is 2 percent throughout 2020.
Required:
A. Based on the estimates made by Ms. Arden, calculate Ms. Arden's minimum 2020 net employment income for each of the two offers. Ignore PST and GST considerations.
B. Discuss the factors that Ms. Arden should consider in deciding between the two alternatives.

Alicia Arden Has Established Herself as a Very Effective Sales