ACCT226 True False Question and Answer Chapter 8 PDF

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Summary

One of the reasons for the favourable tax treatment of capital gains is that the amounts received often have to be reinvested in the business in order to maintain its productive capacity. True or False? A superficial loss occurs when, in the 30 days following the disposition that resulted in the los...

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1.

One of the reasons for the favourable tax treatment of capital gains is that the amounts received often have to be reinvested in the business in order to maintain its productive capacity.

True or False?

2.

A superficial loss occurs when, in the 30 days following the disposition that resulted in the loss, an identical asset is acquired.

True or False?

3.

Mr. Schmidt purchased 250 shares of Doss Limited on February 1 of the current year for $20 per share. On May 1 of the current year, he purchased 100 more shares for $25 per share. On June 20 of the current year, Mr. Schmidt sells 100 shares for $15 per share. His allowable capital loss on June 20 is $643.

True or False?

4.

When there is a disposition of a capital asset and not all of the proceeds of disposition are collected at the time of disposition, a reserve can be deducted. In the year of the disposition, the reserve cannot be less than 80 percent of the total gain.

True or False?

5.

Capital gains on a principal residence are not taxable.

True or False?

6.

Losses on the disposition of listed personal property can be deducted, but only against gains on the disposition of listed personal property.

True or False?

7.

A dining room suite that had been purchased for $700 was sold during the year.

a.

The proceeds of disposition totalled $900. The capital gain on the transaction is $200.

True or False?

b.

The proceeds of disposition totalled $500. The allowable capital loss on the transaction is $100.

True or False?

c.

The proceeds of disposition totalled $1,500. The taxable capital gain on the transaction is $250.

True or False?

8.

When there is a change in use, there will be a deemed disposition/reacquisition.

True or False?

9.

When an individual emigrates from Canada, there is a deemed disposition of all of his capital property at fair market value.

True or False?

10. To be an eligible corporation for purposes of the deferral provisions on small business investments, more than 50 percent of the fair market value of its assets must be used to produce active business income in Canada.

True or False?

11. When there is an involuntary disposition of a depreciable asset, any resulting capital gain can be eliminated if the asset is replaced by an asset of equal or greater value, no later than the end of the second taxation year following the disposition.

True or False?

1.

True. The gains may reflect higher prices for the assets the business needs.

2.

True. Note that it would also be a superficial loss if an identical asset was acquired 30 days prior to the disposition.

3.

False. The adjusted cost base of the shares would be equal to their average cost of $21.43 {[(250) ($20) + (100)($25)] ÷ 350}. This means that the allowable capital loss would be $321.50 [($15.00 $21.43)(100)(1/2)].

4.

False. The reserve cannot be more than 80 percent of the total gain.

5.

False. Capital gains on a principal residence are taxable, but there is a formula available to reduce or eliminate the capital gain.

6.

True. While losses on personal use property can, in general, not be deducted, an exception is made for those items that are listed personal property.

7(a). False. There is no capital gain on the transaction, since both the adjusted cost base and the proceeds of disposition are less than $1,000.

7(b). False. There is no allowable capital loss on the sale of personal use property.

7(c). True. The taxable capital gain on the transaction is $250, one-half of the $1,500 proceeds less the deemed cost of $1,000.

8.

True. There will always be a deemed disposition/reacquisition when there is a change in use.

9.

False. There is a deemed disposition/reacquisition of most capital property, but there are types of property that are exempt.

10. False. The requirement for active business income is 90 percent or more.

11. True. If it were a voluntary disposition, replacement would have to occur within one year....