1. Political contributions are allowable business expenses when they result in the awarding of business contracts from the politician or political party.

Select one:

True

False

2. At its June 30, 20X1 year-end, a company accrued a bonus to its owner/manager of $150,000. It paid the amount at the rate of $20,000 per month for 7 months and the final $10,000 was paid in 20X3. How much would be deductible by the company in 20X1, 20X2 and 20X3?

Select one:

a. $120,000 in 20X1 and $30,000 in 20X2.

b. $120,000 in 20X1, $20,000 in 20X2 and $10,000 in 20X3.

c. All the bonus would be deductible in 20X1 as companies report their income on an accrual basis.

d. $140,000 in 20X2 and $10,000 in 20X3.

3. A business deducted the cost of extending the cargo holding area for its delivery truck. Which test would not allow the cost to be deducted as an expense?

Select one:

a. Exempt income

b. Capital

c. Income earning purpose

d. Reasonableness

4. Which of the following expenses would be denied as a deduction as per the provisions of the Canadian Income Tax Act?

Select one:

a. Legal and accounting fees incurred during the construction of a building.

b. Utilities service connection.

c. Advertising costs in a non-Canadian newspaper directed at an American market.

d. Work space in a home used as a taxpayer's principal place of business.

5. Sam runs a proprietorship that generated $75,000 in profits in 20x0. Included in these profits are: a) $10,000 - amortization expense; b) $5,000 - reasonable bad debt expense; c) $55,000 - cost of goods sold (closing inventory at market value); and $8,000 - meals and entertainment with clients. Sam's capital cost allowance has been accurately calculated at $8,500 for the year. How much is Sam's business net income for tax purposes?

Select one:

a. $80,500

b. $75,000

c. $89,000

d. $73,500

6. The principal in distinguishing between business income and capital income (capital gain) is whether the property can provide a long-term benefit to its owner.

Select one:

True

False

7. The estimated bad debt reserve for the ABC Company Ltd. was $55,000 in 20X2. Business profits before the reserve were $85,000. The reserve for doubtful accounts in 20X1 was $35,000. If full reserve was claimed in both years, what would be the income for tax purposes in 20X2?

Select one:

a. $65,000

b. $105,000

c. $85,000

d. $30,000

8. The definition of business income considers size to be a factor and requires that the activity be ongoing.

Select one:

True

False

9. Joe invested in a piece of land seven years ago when real estate prices were rising in his area and land values were expected to double within five years. The land remained vacant and was only used in 20x0 when Joe was approached by a businessman to rent the land for two weeks for a local carnival for a fee of $1,000. It is now 20x2 and Joe has been offered a significant sum of money for his land in response to an advertisement he placed in a local newspaper. Based on Joe's primary intention for the land, the gain on the sale would be classified as

Select one:

a. property income.

b. business income.

c. a capital gain.

d. exempt income.