Question 1

During the year, Toad Co.paid $550,000 in preferred share dividends to Otter Co.Both companies are Canadian corporations.Which of the following is true?

Accepted Answer

A) Otter Co.is subject to Part VI.1 tax. 
B) Toad Co.is subject to Part VI.1 tax. 
C) Neither corporation is subject to Part VI.1 tax. 
D) Both corporations are subject to Part VI.1 tax. 
A) Otter Co.is subject to Part VI.1 tax. 
B) Toad Co.is subject to Part VI.1 tax. 
C) Neither corporation is subject to Part VI.1 tax. 
D) Both corporations are subject to Part VI.1 tax. B

Question 2

Jo Wall is the CEO of Big Co.and is considering whether to engage in a financial lease or to purchase a large capital asset.If Jo purchases the asset, the company will use debt financing.Which of the following accurately describes the similarities in the tax treatment of leasing and purchasing with debt?

Accepted Answer

A) Both methods allow for deductions that reduce taxable income. 
B) The after-tax net present value of the two methods will usually be identical. 
C) The timing of cash payments and tax savings is the same under both alternatives. 
D) Capital cost allowance is always expensed for both alternatives. 
A) Both methods allow for deductions that reduce taxable income. 
B) The after-tax net present value of the two methods will usually be identical. 
C) The timing of cash payments and tax savings is the same under both alternatives. 
D) Capital cost allowance is always expensed for both alternatives. A

Question 3

How much income will Badger require if it decides to fund the expansion with debt?

Accepted Answer

A) $0 
B) $5,400 
C) $20,000 
D) $27,397 
A) $0 
B) $5,400 
C) $20,000 
D) $27,397 C

Question 4

How much income will Badger require if it decides to fund the expansion with a preferred share issue?

Accepted Answer

A) $0 
B) $4,860 
C) $18,000 
D) $24,658 
A) $0 
B) $4,860 
C) $18,000 
D) $24,658

Question 5

Kip Mole is an individual investor who is considering financing Badger's expansion.Kip's tax rates are 50% for interest income, 35% for eligible dividends, and 43% for non-eligible dividends.Which of the following statements is accurate for Kip?

Accepted Answer

A) If Badger adjusted the preferred dividend return to 10%, Kip would receive the same after-tax rate of return as the debt financing allows at 10%. 
B) If Badger adjusted the preferred dividend return to 7.7% (if eligible) or 8.8% (in non-eligible), Kip would receive the same after-tax rate of return as the debt financing allows at 10%. 
C) If Badger adjusted the preferred dividend return to 8.8% (if eligible) or 7.7% (in non-eligible), Kip would receive the same after-tax rate of return as the debt financing allows at 10%. 
D) The rates currently offered by Badger will allow Kip to earn an equivalent after-tax rate of return on either type of investment. 
A) If Badger adjusted the preferred dividend return to 10%, Kip would receive the same after-tax rate of return as the debt financing allows at 10%. 
B) If Badger adjusted the preferred dividend return to 7.7% (if eligible) or 8.8% (in non-eligible), Kip would receive the same after-tax rate of return as the debt financing allows at 10%. 
C) If Badger adjusted the preferred dividend return to 8.8% (if eligible) or 7.7% (in non-eligible), Kip would receive the same after-tax rate of return as the debt financing allows at 10%. 
D) The rates currently offered by Badger will allow Kip to earn an equivalent after-tax rate of return on either type of investment.

Question 6

Marti Diego is deciding where to invest $10,000.The options include receiving a 5% capital gain or a 7% non-eligible dividend as the return on investment.Marti's marginal tax rates are 45% on regular income, 37% on non-eligible dividends, 28% on eligible dividends, and 23% (rounded) on capital gains.Which of the following statements is correct?

Accepted Answer

A) Marti will receive a higher after-tax rate of return on the capital gain due to the higher tax rate for non-eligible dividends. 
B) Marti will receive an after-tax rate of return of 5% on the capital gain and 7% on the non-eligible dividends. 
C) Marti will receive an after-tax rate of return of 3.85% on the capital gain and 4.41% on the non-eligible dividends. 
D) There is no difference in the after-tax rate of return on the two investments. 
A) Marti will receive a higher after-tax rate of return on the capital gain due to the higher tax rate for non-eligible dividends. 
B) Marti will receive an after-tax rate of return of 5% on the capital gain and 7% on the non-eligible dividends. 
C) Marti will receive an after-tax rate of return of 3.85% on the capital gain and 4.41% on the non-eligible dividends. 
D) There is no difference in the after-tax rate of return on the two investments.

Question 7

Which of the following statements regarding debt and equity financing is false?

Accepted Answer

A) Interest payments on debt financing are usually fully deductible by the corporation for tax purposes. 
B) Interest income from debt financing is taxable in the hands of the investor. 
C) Dividend payments on equity financing are deductible by the corporation for tax purposes. 
D) Dividends are paid from after-tax corporate income. 
A) Interest payments on debt financing are usually fully deductible by the corporation for tax purposes. 
B) Interest income from debt financing is taxable in the hands of the investor. 
C) Dividend payments on equity financing are deductible by the corporation for tax purposes. 
D) Dividends are paid from after-tax corporate income.

Question 8

With regard to debt and equity securities, which of the following statements is correct? (Assume the corporations are not in the business of lending money.)

Accepted Answer

A) A premium on an equity issue has a tax impact on the issuing corporation. 
B) A discount on an equity issue has a tax impact on the issuing corporation. 
C) A premium on a debt security is taxed in the hands of an issuing corporation. 
D) A discount on a debt security is fully or 50% deductible for tax purposes, depending on the discount rate. 
A) A premium on an equity issue has a tax impact on the issuing corporation. 
B) A discount on an equity issue has a tax impact on the issuing corporation. 
C) A premium on a debt security is taxed in the hands of an issuing corporation. 
D) A discount on a debt security is fully or 50% deductible for tax purposes, depending on the discount rate.

During the year, Toad Co.paid $550,000 in preferred share dividends to Otter Co.Both companies are Canadian corporations.Which of the following is true?

How much income will Badger require if it decides to fund the expansion with debt?

How much income will Badger require if it decides to fund the expansion with a preferred share issue?

Kip Mole is an individual investor who is considering financing Badger's expansion.Kip's tax rates are 50% for interest income, 35% for eligible dividends, and 43% for non-eligible dividends.Which of the following statements is accurate for Kip?

Which of the following statements regarding debt and equity financing is false?

With regard to debt and equity securities, which of the following statements is correct? (Assume the corporations are not in the business of lending money.)

Taxationits Role in Decision Making

Fundamentals of Tax Planning

Liability for Tax, Income Determination, and Administration of the Income Tax System

Income From Employment

Income From Business

The Acquisition, Use, and Disposal of Depreciable Property

Income From Property

Gains and Losses on the Disposition of Capital Propertycapital Gains

Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes

Individuals: Determination of Taxable Income and Taxes Payable

Corporationsan Introduction

Organization, Capital Structures, and Income Distributions of Corporations

The Canadian-Controlled Private Corporation

Multiple Corporations and Their Reorganization

Partnerships

Limited Partnerships and Joint Ventures

Trusts

Business Acquisitions and Divestituresassets Versus Shares

Business Acquisitions and Divestiturestax-Deferred Sales

Domestic and International Business Expansion

GST/HST Overview

Business Valuations

Filters

Exam 21: Tax Aspects of Corporate Financing

During the year, Toad Co.paid $550,000 in preferred share dividends to Otter Co.Both companies are Canadian corporations.Which of the following is true?

How much income will Badger require if it decides to fund the expansion with debt?

How much income will Badger require if it decides to fund the expansion with a preferred share issue?

Kip Mole is an individual investor who is considering financing Badger's expansion.Kip's tax rates are 50% for interest income, 35% for eligible dividends, and 43% for non-eligible dividends.Which of the following statements is accurate for Kip?

Which of the following statements regarding debt and equity financing is false?

With regard to debt and equity securities, which of the following statements is correct? (Assume the corporations are not in the business of lending money.)

Taxationits Role in Decision Making

Fundamentals of Tax Planning

Liability for Tax, Income Determination, and Administration of the Income Tax System

Income From Employment

Income From Business

The Acquisition, Use, and Disposal of Depreciable Property

Income From Property

Gains and Losses on the Disposition of Capital Propertycapital Gains

Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes

Individuals: Determination of Taxable Income and Taxes Payable

Corporationsan Introduction

Organization, Capital Structures, and Income Distributions of Corporations

The Canadian-Controlled Private Corporation

Multiple Corporations and Their Reorganization

Partnerships

Limited Partnerships and Joint Ventures

Trusts

Business Acquisitions and Divestituresassets Versus Shares

Business Acquisitions and Divestiturestax-Deferred Sales

Domestic and International Business Expansion

GST/HST Overview

Business Valuations

Filters