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Buckwold12e_ch11_Review - CHAPTER 11 CORPORATIONSAN...

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CHAPTER 11 CORPORATIONS―AN INTRODUCTION Review Questions 1. “A corporation is an artificial person separate and distinct from its owners.” Briefly explain this statement. 2. Identify the types of relationships that can exist between a corporation and its shareholders. 3. What factors may influence the value of a corporation’s common share capital? 4. Identify two ways in which a shareholder can realize a return on a share investment. Describe the relationship between them. 5. “Given the choice, individual shareholders of a corporation prefer to receive their return on investment by way of dividends, rather than from the sale of shares at a profit.” Is this statement true? Explain. 6. “A shareholder may have a primary relationship as well as secondary relationships with the corporation. The difference between the two relationships relates to the tax treatment of income flows between the corporation and the shareholder.” Explain. 7. Corporations and individuals determine their taxable income in different ways. What are the differences? 8. How are the net capital losses and non-capital losses of a corporation affected when voting control of the corporation shifts from one shareholder to another? 9. If the shares of a corporation that has non-capital losses are about to be sold and if those losses arise from business operations, why is it important for the vendor to consider the nature of the purchaser? 10. An existing corporation that operates a profitable retail business is considering expanding its activities to include manufacturing. The expansion business can be organized in either of two basic ways. Describe them. Also, what factors must be considered when a choice is being made between the two structures?
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11. How does the tax treatment of intercorporate dividends affect the relationship between dividends and capital gains when one corporation invests in shares of another corporation? (Assume that both entities are taxable Canadian corporations.) 12. Explain why the federal tax reduction of 9% or a provincial tax reduction on manufacturing and processing activities may apply to an amount that is greater than or less than the corporation’s actual income from manufacturing. Is it possible for a corporation that earns $500,000 from retail activities and suffers a loss of $50,000 from manufacturing activities to be eligible for the 9% manufacturing reduction? 13. What is the marginal tax rate for a public corporation in Ontario on income derived from a chain of restaurants? Show calculations. 14. Because income earned by a corporation is first subject to corporate tax and then taxed a second time when after-tax profits are distributed to individual shareholders, shareholders are entitled to claim a dividend tax credit. Does the dividend tax credit eliminate the double taxation of corporate profits? Explain.
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