ADMS4561 Final Exam Question 2
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Apr 3, 2024
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Question 2 (17 marks, 30 minutes) released at 7:50 (40-minute deadline 8:30pm) Myah is 48 years of age and lives in Toronto with her two children, Max (15 years old) and Siobhan (18 years old). She works as a Director of Finance at Canada Restaurants Inc. (“CRI”). It has been a year of many changes for Myah and her family. Myah is a long-time client of your firm, CPA LLP. Earlier in November 2021, Myah requested to meet with you to discuss the tax implications of a few non-routine transactions that took place during 2021. Myah has asked you to provide her with a detailed analysis for each issue presented below relating to the 2021 year only. Myah has asked that you provide explanations as well as any necessary calculations, as she would like to follow your logic. Transfer of Assets In January 2018, Myah transferred shares of Pubco Inc. (“Pubco”), a Canadian public company, to her husband Charlie. At the time of transfer, Charlie did not pay Myah anything for her Pubco shares, nor did Myah elect out of the spousal rollover in her 2018 tax return. Pubco declares and pays a $1,000 dividend annually to Charlie in June each year. Myah and Charlie decided to separate and began living apart in April 2021. Their two children, Max and Siobhan continue to live with Myah. Myah remembers your advice as to who was to report income from the Pubco shares in the past, but she would like to know whether this is still the case for 2021. Furthermore, she understands that Charlie sold the Pubco shares in October 2021 and wonders how they can determine who reports the capital gain or loss on the sale. Spousal RRSP In November 2020, Myah made a $8,000 contribution to Charlie’s RRSP which she deducted on her 2020 tax return. This was the first time Myah made a contribution to Charlie’s RRSP as she normally only contributes to her own RRSP. In February 2021, Charlie withdrew $2,000 from his RRSP. He withdrew another $3,000 from his RRSP in October 2021. Although it is no longer Myah’s business what her husband spends his money on, she would like to know whether these withdrawals should concern her. Support Payments Myah and Charlie’s separation was amicable. Since Myah and Charlie make enough money on their own, their separation agreement does not require either party to make spousal support payments. It does, however, require Charlie to pay Myah $2,500 a month in child support for Max starting in April 2021. Myah would like confirmation as to whether the receipt of support payments causes any tax issues for either herself and/or Max. Tax Credits Myah would like to know whether there are any tax credits available to her since both children are living with her. Neither Max nor Siobhan are infirm or eligible for the disability tax credit. Max and Siobhan each earn $1,000 of interest income on a T-Bill inherited from their deceased grandmother. (Page 1 of 2 - Continued on next page)
2 Loan Interest and Investment Income On January 1, 2021, Myah took advantage of the low interest rate of 4% on a line of credit offered by her bank, RBC. Myah borrowed $100,000 from RBC to purchase a $100,000 bond, at par, which matures in 5 years. The bond bears interest at 5% per annum, which is paid semi-
annually on June 30
th
and December 31
st
. On August 1, 2021, Myah decided to sell the bond for $90,000. Her kids were having a tough time with the news of the separation, so she used $10,000 of the $90,000 proceeds to make a gift of $5,000 to each of her children and spent another $15,000 on a Disney World vacation taking place next month. She used the remaining $65,000 of the proceeds to buy common shares of ABC Co. Myah would like to know the tax implications of the income and sale of the bond in 2021 as well as how much interest paid on the line of credit she can deduct in the year. The $100,000 loan will remain outstanding for the remainder of the 2021 year. Moving Expenses In September 2021, Myah received a promotion at CRI. Myah was thrilled about this as her salary would increase substantially, but it meant that Myah would have to work out of CRI’s Vaughan office. She is not exactly thrilled about uprooting the kids from their childhood home in Toronto, but Myah really wanted to take this opportunity as a ‘new start’ post separation. In mid September, Myah put her Toronto home up for sale and moved into a rental apartment in Vaughan, located 30 km from her Toronto home. The Vaughan office is a five-minute walk from her apartment. She incurred the following in moving costs: - House hunting trips of $200 - Moving van of $1,500 - Commissions and legal costs relating to the sale of Toronto home of $20,500 Myah’s employer did not reimburse any of these moving expenses, so she would like to know how much of these expenses are deductible in 2021. Myah is expected to earn $65,000 of income at the Vaughan location for the remainder of the year.
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Net pay
The
tentative
amount to
withhold is:
с
Married Filing Jointly
$ 0.00
$ 0.00
$76.60
$358.84
$1,134.78
$ 2,584.86
$3,680.22
$ 6,499.82
At least But less
than-
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A
$0
$ 965
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$1,731 $4,083
$4,083 $7,610
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$ 13,652 $ 17,075
$17,075 $ 25,131
$ 25,131
Plus this
percentage
D
0%
10%
12%
22%
24%
32%
35%
37%
of the
amount
that the
Adjusted
Wage
exceeds-
E
-
Table 9.1
A
At least But less
than-
TABLE 2-BIWEEKLY Payroll Period
$0
$0
$483
$ 965
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$7,610 $3,805
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corporation. The 401(k) portion of her employment package has a personal investment cap at 20% of her salary and
the employer contribution portion is 50% of her contribution. Her annual salary is $56,500 and she chose to
invest 14% annually.
FUTURE VALUE of $1
Periods
8
9
10
11
3%
1.267
1.305
1.344
1.384
4%
1.369
1.423
1.480
1.539
FUTURE VALUE of ANNUITY of $1
Periods
8
9
10
11
3%
8.892
10.159
11.464
12.808
4%
9.214
10.583
12.006
13.486
Required:
Calculate the value of her 401(k) after 10 years at 4%, and then calculate the value of her 401(k) had she invested
the maximum amount that her employer would match.
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Required information
[The following information applies to the questions displayed below.]
Seiko's current salary is $98,500. Her marginal tax rate is 32 percent and she fancies European sports cars. She
purchases a new auto each year. Seiko is currently a manager for Idaho Office Supply. Her friend, knowing of her inte
in sports cars, tells her about a manager position at the local BMW and Porsche dealer. The new position pays only
$87,100 per year, but it allows employees to purchase one new car per year at a discount of $17,700. This discount
qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, ldaho Office Supply offers her a
$12.400 raise. Answer the following questions about this analysis.
a. What is the annual after-tax cost to Idaho Office Supply if it provides Seiko with the $12.400 increase in salary? (Ignore pa;
taxes.)
After-tax cost
L..
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- Question 17 of 50 Read the scenario below and answer the following question. Chen at Chen Construction works on new neighbourhood developments that take many months to complete. They often cross a fiscal year. He typically requires a deposit from the homeowners. When a 3rd customer called to complain that they had recently overpaid for a home build, Chen discovered that their $200,000 deposit was still sitting in the Customer Deposits liability account. Due to this and other errors, he has just fired his bookkeeper and hired you to review and fix his books. He's looking for you to advise him on correct procedures to use going forward. What step was missed from the Unearned Income workflow to cause this scenario? A Recording the customer deposit into the Customer Deposits liability account B Recording a credit memo to reflect the amount of the deposit CO Writing a cheque to refund the overpayment DO Recording the deposit as a negative amount on invoices E Mapping the Customer Deposit…arrow_forwardSe Ri Pak, age 23, recently graduated with her bachelor's degree in library and information sciences. She is about to take her first professional position as an archivist with a civil engineering firm in a rapidly expanding area in the U.S. Southwest. While in school, Se Ri worked part time, earning about $8000 per year. For the past two years, she has managed to put $1000 each year into an individual retirement account (IRA), Se Ri owes $15,000 in student loans on which she is obliged now to begin making payments. Her new job will pay $45,000. Se Ri may begin participating in her employer's 401(k) retirement plan immediately, and she can contribute up to 6 percent of her salary to the plan. Her employer will contribute 1/2 of 1 percent for every 1 percent that Se Ri contributes. What do you recommend to Se Ri on the importance of personal finance regarding: 3. Factoring the current state of the economy into her personal financial planning?arrow_forwardRuth (31) is your new client. She graduated from GBC five years ago. Since then, she has worked hard and progressed at her job. Two years ago, she bought a condo and now she finds that money is tight She is looking for your input on her financial position. Below is the financial data she provides for 2020. Incomes and expenses are annual, assets and liabilities are balances on Dec 31, 2020 Chequing Account $3000 RRSP $21000 Saving Account $6000 Condo $590000 Stock Portfolio $18000 Car. $ 39000 GIC (5-year term) $7000. Student loan $21000 Car Loan $25000. Line of credit(outstanding)$29000 Employment Income $ 88000. Mortgage debt $250000 Income Taxes $32000. Clothing $2500 Mortgage payments $17000. Heat $2000 Food expenses $5500. Entertainment $5000 Loan payments $11000. Transportation $4500 Insurance premiums $3000. Vacation $4000…arrow_forward
- Joan Hart borrowed $9,800 to travel to France to see her son Dick. Joan’s loan was to be paid in 50 monthly installments of $250. At the end of 7 months, Joan’s daughter Abby convinced her that she should pay off the loan early. What are Joan’s rebate and payoff amount?arrow_forwardCase: Two months ago, Lisa was honorably discharged from the Air Force where she spent four years training as an airplane mechanic. After discharge, she relocated to take a 40 hour per week apprentice mechanic job with a major airline company where she earns $18 an hour. Last month, her husband Dave, who has worked the past two years as a registered nurse, found a nursing job with a local hospital making $625 per week. They just bought a new car and pay $400 each month on that loan and have no other monthly debts. What is the maximum mortgage payment (PITI) a lender would allow for a conventional loan based on the housing expense ratio only? Using the total debt-to-income ratio, what is the maximum amount of total debt allowed for a conventional loan? What is the maximum mortgage payment (PITI) a lender would allow for a conventional loan using total debt-to-income ratio only? Can Lisa and Dave get approved for a loan, even though they’ve only been at their jobs a short time? Explain.arrow_forwardThrough the classifieds of the Miami Herald Rhonda Brennan found her first job after graduating from college. She was delighted when the offer came through at $21.50 per hour. She completed her W-4 stating that she is married filing as head of household. Her company will pay her biweekly for 80 hours. Calculate her take-home pay for her first check. The tax rate for Social security is 6.2% and Medicare is 1.45%. (Use Table 7.1.) Note: Do not round intermediate calculations. Round your answer to the nearest contarrow_forward
- Jenny spent all of her adult life working in a honey manufacture company. Her first year of salary was $118,000 and her last year of salary was $450,000. If the salary grew at an average rate of 3.15% per year, many years did Jenny stay at this company? how 5/15 Qs pur choice: A: 43.16 years B: 40.00 years C: 31.68 years D: 25.91 yearsarrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forward
- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 198 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $290. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardStaci Valekbegan dabbling in pottery several years ago as a hobby. Her work is quite creative, and it has been so popular with friends and others that she has decided to quit her job with an aerospace company and manufacture pottery full time. The salary from Staci’s aerospace job is $3,800 per month. Staci will rent a small building near her home to use as a place for manufacturing the pottery. The rent will be $500 per month. She estimates that the cost of clay and glaze will be $2 for each finished piece of pottery. She will hire workers to produce the pottery at a labor rate of $8 per pot. To sell her pots, Staci feels that she must advertise heavily in the local area. An advertising agency states that it will handle all advertising for a fee of $600 per month. Staci’s brother will sell the pots; he will be paid a commission of $4 for each pot sold. Equipment needed to manufacture the pots will be rented at a cost of $300 per month. Staci has already paid the legal and fi ling fees…arrow_forward
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