Homework Problem 3-3 - Step 1 Calculate Personal Use Ratio...

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Solution to Problem 3:3 Facts : The Jareau Manufacturing Company owns a car costing $30,000, which has been provided to Mr. Robert Stickler, Sales Manager Mr. Stickler drove the car a total of 36,000 kilometers, with all expenses paid for by the company The company’s operating costs total $3,920 and the company deducted $5,610 CCA Case A : The car is available to Mr. Stickler all year and he drives it a total of 7,200 kilometers for personal purposes: Step 1: Calculate Personal Use Ratio: 7,200/36,000 = 20% Because personal usage is less than 50%, Mr. Stickler qualifies for the standby reduction and the choice of operating benefit alternatives Step 2: Calculate the Taxable Benefit: Standby Charge: (A/B)(2%)(Capital Cost)(# mths avail) (7,200/20,004) (2%) ($30,000) (12) $2,591 Operating Cost Benefit: Lesser of: (7,200) ($0.24) $1,728 (1/2) ($2,591) $1,296 1,296 Total Benefit $3,887
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Case B : The car is available to Mr. Stickler for 10 months and he drives it a total of 15,000 kilometers for personal purposes:
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Unformatted text preview: Step 1: Calculate Personal Use Ratio: 15,000/36,000 = 41.7% Because personal usage is less than 50%, Mr. Stickler qualifies for the standby reduction and the choice of operating benefit alternatives Step 2: Calculate the Taxable Benefit: Standby Charge: (A/B)(2%)(Capital Cost)(# mths avail) (15,000/[10x1,667]) (2%) ($30,000) (10) $5,399 Operating Cost Benefit: Lesser of: (15,000) ($0.24) $3,600 (1/2) ($5,399) $2,700 2,700 Total Benefit $8,099 Case C : The car is available to Mr. Stickler for 6 months and he drives it a total of 25,200 kilometers for personal purposes: Step 1: Calculate Personal Use Ratio: 25,200/36,000 = 70% Because personal usage is more than 50%, Mr. Stickler does not qualify for either the standby reduction or the choice of operating benefit alternatives Step 2: Calculate the Taxable Benefit: Standby Charge: (2%)(Capital Cost)(# mths avail) (2%) ($30,000) (6) $3,600 Operating Cost Benefit: (25,200) ($0.24) $6,048 Total Benefit $9,648...
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