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QUIZ 1. Multiple ch questions

1)

On January 1, 20X5, AKM Corp. paid $450,000 cash to acquire 25% of the common shares of GKM Corp. At the time of acquisition, the carrying value of GKM's common shares was $500,000, and its retained earnings were $1,200,000. The fair values of the identifiable net assets (INA) approximated their carrying values except for a patent whose fair value was $20,000 higher than its carrying value. The patent has a five-year remaining useful life, and straight-line depreciation is used. GKM paid dividends of $40,000 in 20X5 and reported net income of $120,000.

What amount would be reported on AKM's income statement related to its investment in GKM for 20X5?

a) Investment income of $19,000

b) Investment income of $26,000

c) Investment income of $29,000

d) Investment income of $31,000

2. On January 1, 20X5, KMA Corp. paid $400,000 cash to acquire 40% of the common shares of JDL Corp. At the time of acquisition, the carrying value of JDL's common shares was $250,000, and its retained earnings were $400,000. The fair values of the INA approximated their carrying values except for equipment whose fair value was $15,000 higher than its carrying value. The equipment has a six-year remaining useful life, and straight-line depreciation is used. The investment was found to be impaired by the amount of $8,000 by the end of 20X5. JDL paid dividends of $10,000 in 20X5 and reported net income of $120,000.

What amount would be reported in KMA's "investment in JDL" account at December 31,

20X5, assuming the equity method is used?

a) $435,000

b) $436,000

c) $24,786

d) $37,714

3. On January 1, 20X4, JVE Corp. paid $1,000,000 cash to acquire 35% of the common shares of PG Corp. At the time of acquisition, the carrying amount of PG's common shares was $900,000, and its retained earnings were $1,500,000. The fair values of the identifiable net assets (INA) approximated their carrying values except for the following

: The fair value of machinery was estimated to be $400,000; the net book value was $450,000. Other information follows:

The remaining useful life of machinery at the date of acquisition was five years, and the estimated residual value was $0. Both companies depreciate their equipment on a straight-line basis.

PG's net income for the years ended December 31, 20X4, and December 31, 20X5, was $125,000 and $135,000, respectively.

On September 1, 20X4, PG declared and paid $75,000 of dividends on its common shares; no other dividends have been declared since.

The investment in the associate was not impaired.

On January 1, 20X6, JVE reduced its ownership stake in PG to 25%. Cash proceeds realized from the sale of the shares was $330,000.

What is the amount of gain to be reported on the partial disposal of PG's common shares on January 1, 20X6?

a) $16,286

b) $23,786

c) $24,786

d) $37,714

6 )

1. Which of the following statements regarding income tax law in Canada is true?

a) Income tax laws are published in income tax folios. b) Income Tax Regulations are not laws.

c) The Department of Finance enforces income tax law.

d) The Canada Revenue Agency enforces income tax law.

7). Which of the following employment benefits is taxable to the employee?

a) Employer contributions to an employee life and health trust

b) Employer contributions to a group term life insurance policy

c) Employer-paid retirement counselling services

d) Employer contributions to a supplementary unemployment benefit plan

8. Mary Jane is an employee of a bank listed on the Toronto Stock Exchange. In January 2019, she was granted 100 stock options to purchase shares of the bank with an exercise price of $10 per share. At that time, the shares were trading at $9 per share. She exercised all 100 stock options in November 2019 when the shares were trading at $11 per share. She sold the shares for $13 in December 2019. What is her 2019 employment income inclusion?

a) $ 50

b) $100

c) $150

d) $200

9. Phame, a salaried engineer, uses his own vehicle to perform employment duties. He would like to deduct expenses related to the use of his vehicle from his employment income. Which of the following is a condition necessary for him to deduct the expenses?

a) Phame is required to be away from the municipality where the employer's establishment is located for at least 12 hours.

b) Phame receives a reasonable allowance for the vehicle expenses.

c) Phame's employment contract requires him to pay for vehicle expenses incurred for employment purposes.

d) Phame earns commission income

10. Albert is a commission sales representative who is required to maintain a home office to perform 60% of his employment duties and to pay for all the expenses incurred. Which of the following expenses can be deducted as a home office expense?

a) Property taxes

b) Capital cost allowance

c) Mortgage interest

d) Travel expenses