BUS 345 Answers to Chp 5 Assignment Problems #2

BUS 345 Answers to Chp 5 Assignment Problems #2 - CHAPTER...

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CHAPTER FIVE SOLUTIONS - #2 Solution to Assignment Problem Five - 3 With respect to Cars B and C, employment related usage was more than 50 percent of total usage and, as a consequence, there is an available reduction in the standby charge, as well as an alternative calculation of the operating cost benefit. For Car A, the employment related use is less than 50 percent and, as a consequence, there is no alternative calculation of either the standby charge or the operating cost benefit. Car A Standby Charge [(2%)($30,000)(12)] $7,200 Operating Cost Benefit [(9,000)($0.22)] 1,980 Total Taxable Benefit $9,180 Car B Standby Charge [(2/3)(12)($635)(11/12)(6,000/18,337)] $1,524 Operating Cost Benefit - Lesser Of: [(6,000)($0.22)] = $1,320 [(1/2)($1,524)] = $762 762 Payment For Personal Use ( 500) Total Taxable Benefit $1,786 Car C Standby Charge [(2%)($30,000)(10)(7,000/16,670)] $2,519 Operating Cost Benefit - Lesser Of: [(7,000)($0.22)] = $1,540 [(1/2)($2,519)] = $1,260 1,260 Total Taxable Benefit $3,779
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Solution to Assignment Problem Five - 6 Case A The required information under the assumption that Hardin Weaving Ltd. is a Canadian controlled private corporation is as follows: Year Of Granting (2005) - No tax effect. Year Of Exercise (2006) - No tax effect. Year Of Sale (2007) - The tax effects would be as follows: Employment Income [(5,000)($28 - $20)] $40,000 Taxable Capital Gain [(5,000)($32 - $28)(1/2)] 10,000 Increase In Net Income For Tax Purposes $50,000 Deduction Under ITA 110(1)(d) [( 1/2)($40,000)] ( 20,000) Increase In Taxable Income $30,000 Case B The tax effects in this Case would be identical to Case A. As the specified value of the shares was less than $100,000, Ms. Jones would make a 2006 election to defer all of the employment income inclusion. Case C The required information under the assumption that Hardin Weaving Ltd. is a Canadian public company is as follows: Year Of Granting (2005) - No tax effect. Year Of Exercise (2006) - As the option price was less than the fair market value of the shares at the time the options were issued, the ITA 110(1)(d) deduction from Taxable Income is not available, and no election can be made to defer the income inclusion. The tax effects would be as follows: Employment Income [(5,000)($28 - $20)] = Increase In Net Income For Tax Purposes $40,000 Deduction Under ITA 110(1)(d) Nil Increase In Taxable Income $40,000 Year Of Sale (2007) - The tax effect would be a taxable capital gain of $10,000 [(5,000)($32 - $28) (1/2)]. Case D The required information under the assumption that Hardin Weaving Ltd. is a Canadian controlled private corporation is as follows: Year of Granting And Exercise (2005) - No tax effect. Year of Sale (2007) - As the option price was less than the fair market value of the shares at the time
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This note was uploaded on 10/07/2008 for the course BUS 343 taught by Professor Leung during the Fall '08 term at Kwantlen Polytechnic University.

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BUS 345 Answers to Chp 5 Assignment Problems #2 - CHAPTER...

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