Question :
21) Canada, like most taxing authorities, uses different methods for : 1186200
21) Canada, like most taxing authorities, uses different methods for calculating depreciation for tax purposes. The Income Tax Act uses which of the following methods?
A) accelerated amortization
B) straight-line and accelerated amortization
C) straight-line, double declining balance, and accelerated amortization
D) straight-line and declining balance
E) double declining balance and accelerated amortization only
22) Wilf Company acquired an additional Class 10 (30% declining balance) asset for $60,000. The UCC at the beginning of the year was $100,000. CCA in the current year is
A) $48,000.
B) $24,000.
C) $45,000.
D) $37,500.
E) $39,000.
For Years 1 through 6 Better Products Ltd. had annual net income of $20,000, CCA of $40,000 each year, a 40 percent tax rate, a discount rate of 10 percent and annual cash sales of $200,000. The depreciable assets of Better Products belong in several different classes under the Income tax Act, have a salvage value of zero at the end of six years, and were all bought new at the beginning of Year 1. The present value factors, in simplified form, for 10 percent are:
Year
PV of $1
PV of annuity of $1
1
0.91
0.91
2
0.83
1.74
3
0.75
2.49
4
0.68
3.17
5
0.62
3.79
6
0.56
4.35
23) What is the annual expense deduction for CCA?
A) $16,000
B) $24,000
C) $36,000
D) $40,000
E) $42,500
24) What is the tax saving from CCA in each year?
A) $16,000
B) $24,000
C) $36,000
D) $54,000
E) $14,400
25) If the appropriate tax rate is 35%, the after-tax effect of a single CCA deduction of $60,000 is
A) $39,000 net after-tax cash outflow.
B) $39,000 net after-tax cash inflow.
C) $21,000 net after-tax cash outflow.
D) $21,000 net after-tax cash inflow.
E) $24,000 net after-tax cash inflow.
26) Biermann Equipment is a publicly held corporation required to pay income taxes. For the current year it had revenues of $5,000,000 and cash expenses of $3,000,000, and claimed CCA of $200,000. The company has a 30 percent tax rate.
What would be the net cash flow for the current year if all revenues were received in cash?
A) $600,000
B) $1,260,000
C) $1,460,000
D) $1,800,000
E) $2,000,000
27) The three factors that generally influence depreciation for tax purposes are: amount allowable for depreciation, allowable life of asset, and allowable methods of depreciation. In Canada, for tax purposes,
A) the amount allowable for CCA is the cost of the asset, and, the allowable life of asset and the amount of salvage value are determined by its Class under the Income Tax Act.
B) the amount allowable for CCA is the cost of the asset; the tax-based depreciation rate is determined by the Class of the asset under the Income Tax Act, and neither the estimated life of asset nor the amount of estimated salvage value are relevant in calculating the CCA claim.
C) the allowable depreciation for tax purposes (CCA) is increased for the first year only.
D) depreciable assets are placed in various classes by the Income Tax Act, based on their estimated salvage value.
E) in the year of acquisition of new assets into an existing pool the allowable CCA claim is based on 50% of all the assets in the pool.
28) Which of the following statements is true?
A) The accounting book value for all assets in a class equals the UCC for that class.
B) The CCA claimed does not affect cash outflows.
C) The total CCA available over the life of the asset depends on the method of depreciation used.
D) Since CCA does not involve a cash expenditure, it can be ignored in capital-budgeting decisions.
E) The depreciation method used does not affect cash inflows from operations.
29) A company purchased a class 8 asset (there were no disposals). If the asset cost $20,000, had an estimated salvage value of $5,000, using the declining balance method with an allowable rate of 20%, the allowable CCA in the first and second years would be, respectively,
A) $1,500 and $2,700.
B) $2,000 and $3,600.
C) $3,000 and $2,400.
D) $3,000 and $1,200.
E) $4,000 and $3,200.
30) When calculating the lost tax shield concerning the terminal disposition of an asset four years from now,
A) the amount calculated by the Tax Shield formula must also be discounted for the four years by the relevant discount factor.
B) the discount is already included in the formula.
C) we discount the Lost Tax Shield amount by the tax rate.
D) we discount the Lost Tax Shield amount by (1 – tax rate).
E) we discount the Lost Tax Shield amount by (1 + tax rate).
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