1. On January 1, 2020, Leno Ltd. issues bonds for $770,000. The bonds have a maturity value of $800,000 and mature on December 31, 2022. The coupon rate on the bonds is 3 percent, with the interest paid annually on December of each year. The maturity amount is paid on December 31, 2022. What are the tax consequences related to this bond issue for Leno Ltd. in each of the years 2020 through 2022? How would these tax consequences differ from the information included in Leno's GAAP based financial statements? Leno Ltd. uses the straight-line method to amortize the discount on the bonds for accounting purposes.
2. Ms. Marilyn Lox invests in a newly issued debt instrument on April 1, 2020. It has a maturity value of $50,000, matures on March 31, 2024, and pays interest at an annual rate of 5 percent. The terms of the instrument call for payment of interest for the first two and one-half years on September 30, 2022. The remaining interest is paid at the maturity date of the instrument. What amount of interest will Ms. Lox have to include in her tax returns for each of the years 2020 through 2024?
3. Mr. Martin Pabst owns publicly traded shares which, during 2020, paid eligible dividends of $10,200. His Taxable Income for this year exceeds $300,000 and he lives in a province where the maximum individual tax rate is 16 percent. The provincial tax credit on eligible dividends is equal to 29 percent of the gross up. Determine the total federal and provincial tax that will be payable on these dividends and his after tax retention.