Financial Accounting > QUESTIONS & ANSWERS > ACCT 722 Quiz 3 solutions. 100% Pass rate. (All)

ACCT 722 Quiz 3 solutions. 100% Pass rate.

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Which of the following is not a general principle used in determining profit for income tax purposes? The determination of profit is a question of law. The profit is determined by matching expenses paid to revenues earned for the same taxation year. The objective is to obtain an accurate picture of the profit for a taxation year. The taxpayer can adopt any method provided it is consistent with the Income Tax Act. 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? All the bonus would be deductible in 20X1 as companies report their income on an accrual basis. $140,000 in 20X2 and $10,000 in 20X3. $120,000 in 20X1, $20,000 in 20X2 and $10,000 in 20X3. $120,000 in 20X1 and $30,000 in 20X2. 3. 4. 5. The primary test for the deductibility of expenses related to business income is… Personal expense Reasonableness Capital Income earning or maintaining purpose For tax purposes, stock-based compensation is deductible to the corporation… In the year the option is granted In the year the option is exercised Never When recorded as an expense in the financial statements, in accordance with GAAP. If a restaurant owner paid their child $50 per hour to clear tables in the restaurant, the expense could be denied by which of the following tests? Income-Earning Purpose Capital Personal Expense Reasonableness 6. 7. 8. An employee drove an automobile 7,000 kilometres for work and was paid a reasonable allowance. What would be the maximum allowance the employer could deduct in their 2019 taxation year? $3,640 $3,760 $3,940 $4,060 Which of the following costs would not be added to the capital cost of an automobile? Gas provided by the dealership at the time of delivery. Delivery costs from the factory to the dealership. Cost of added options, such as air conditioning and a sun roof. The cost of the initial vehicle license. Most businesses determine net profit in accordance with generally accepted accounting principles (GAAP). GAAP is generally the sole determinate for computing net income for tax purposes. True False 9. 10. If a source of income is not taxable, the expenses related to that income are not tax deductible. True False One of the two permitted methods for valuing closing inventory is to value each item at the lower of cost or market value. True False

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