ACCT226 MCQ and Answer Chapter 7 #4 PDF

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Which of the following statements with respect to income trusts and mutual funds is NOT correct? A. Mutual funds can be organized as either trusts or corporations.B. When an income trust makes a capital distribution, the amount received by a unit holder will be deducted from the adjusted cost base o...

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1.

Which of the following statements with respect to income trusts and mutual funds is NOT correct?

A. Mutual funds can be organized as either trusts or corporations. B. When an income trust makes a capital distribution, the amount received by a unit holder will be deducted from the adjusted cost base of the units held. C. Business income received by an income trust will be distributed to investors as business income. D. Eligible dividends received by a mutual fund will be distributed to investors as eligible dividends.

2.

Maria owns 500 units in a mutual fund that invests exclusively in bonds issued by Canadian public corporations. During 2019 the mutual fund received bond interest and paid income distributions of $1.12 per unit. Maria reinvested all of her distributions. The effect on Maria’s 2019 Taxable Income is:

A. Increase of $280. B. Increase of $560. C. Increase of $773. D. $0 because the distributions were reinvested.

3.

Yang owns 800 units in a mutual fund that invests exclusively in the shares of Canadian public corporations. During 2019, the fund paid a distribution of $1.50 per unit. One-half of the distribution was eligible dividend income and the remaining half was capital gains. By how much will Yang’s Taxable Income increase as a result of the distribution?

A. $600. B. $1,128. C. $1,200. D. $1,428.

4.

Which of the following statements is correct for both income trusts that are not specified investment flow-through trusts (i.e., not SIFTs) and mutual fund trusts?

A. Dividend income is grossed up before it is distributed to the unit holders. B. All after tax distributions are treated as deemed eligible dividends.

C. Income earned by the trust is not subject to income tax within the trust if it is distributed to the unit holders. D. If the distributions are a return of capital, the inclusion rate is 50 percent.

5.

On January 1, 2019, John Traverse acquires 12,000 units of the RV Income Trust at a cost of $720,000. During 2019, the trust makes a distribution of $5.00 per unit. Of this total $1.50 is a return of capital while the remaining $3.50 is property income. John reinvests the total distribution in RV units at a cost of $55 per unit. What is the adjusted cost base of John’s units on December 31, 2019?

A. $58.21 per unit. B. $53.62 per unit. C. $59.58 per unit. D. $60.00 per unit.

6.

During the current year, Pearlene Monroig earns business income in the U.K. of €10,000 from which the British government withholds €2,000. Assume that the relevant exchange rate was €1.00 = $1.70 for the year. Which of the following statements is correct?

A. Pearlene will have foreign source net business income of $13,600 and a credit against Tax Payable of $3,400. B. Pearlene will have foreign source net business income of $17,000 and no credit against Tax Payable. C. Pearlene will have foreign source net business income of $16,150 and a credit against Tax Payable of $2,550. D. Pearlene will have foreign source net business income of $17,000 and a credit against Tax Payable of $3,400.

7.

Julio has a savings account in a foreign country. The account earned $5,000 interest during 2019 but he only received $4,500 since $500 for foreign taxes was withheld by the bank. All amounts are stated in Canadian dollars. The effect on Julio’s 2019 tax return is:

A. An increase in taxable income of $4,500 and a foreign tax credit of $0. B. An increase in taxable income of $5,000 and a foreign tax credit of $500. C. An increase in taxable income of $5,000 and a foreign tax credit of $75. D. Nothing since the interest was earned outside of Canada.

8.

Bernadette owns 1,000 shares of a German public corporation. The corporation paid dividends of $1.50 per share during 2019 but Bernadette only received $1,275 since 15% tax was withheld in Germany. All amounts are stated in Canadian dollars. Bernadette’s 2019 net property income from this investment is:

A. $1,275. B. $1,500. C. $1,760. D. $2,070.

9.

Ravinder’s marginal federal tax rate is 29 percent. He has a foreign investment that earns $50,000 (Canadian) of non-business income. The government of the foreign country withholds $10,000 of this amount, with the remaining $40,000 being remitted to Ravinder during 2019. By what amount will Ravinder’s 2019 federal Tax Payable increase as a result of this transaction?

A. $ 4,500. B. $ 6,275. C. $11,600. D. $14,500.

10. Which of the following will provide the lowest amount of after-tax income for an individual in the top federal tax bracket?

A. $100 of interest income from Canadian bonds B. $100 of capital gains from Canadian stocks C. $100 of non-eligible dividends from Canadian corporations D. $100 of eligible dividends from Canadian corporations

1.

C. income.

Business income received by an income trust will be distributed to investors as business

2.

B.

Increase of $560 [(500)($1.12)]

3.

B.

$1,128 [($1,200)(50%)(138%) + ( $1,200)(50%)(50%)]

4.

C. Income earned by the trust is not subject to income tax within the trust if it is distributed to the unitholders.

5.

A.

6.

D. Pearlene will have foreign source net business income of $17,000 and a credit against Tax Payable of $3,400. [(€10,000)($1.70)] = $17,000; [(€2,000)($1.70)] = $3,400

7.

B.

An increase in taxable income of $5,000 and a foreign tax credit of $500

8.

B.

$1,500 ($1,275 ÷ 85%) or 1,000 @ $1.50

9.

B. $6,275 [(29%)($50,000 - $2,500) - $7,500]. The credit is limited to $7,500, 15 percent of the foreign non-business income. The remaining $2,500 of the withholding is used as a deduction from Net Income For Tax Purposes.

10. A.

$58.21 [($720,000 + $60,000 - $18,000) ÷ (12,000 + 1,090.91)]

$100 of interest income from Canadian bonds...