ADMS4561 Final Exam Question 2
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York University *
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4561
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Finance
Date
Apr 3, 2024
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2
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Question 2 (17 marks, 30 minutes) released at 7:50 (40-minute deadline 8:30pm) Myah is 48 years of age and lives in Toronto with her two children, Max (15 years old) and Siobhan (18 years old). She works as a Director of Finance at Canada Restaurants Inc. (“CRI”). It has been a year of many changes for Myah and her family. Myah is a long-time client of your firm, CPA LLP. Earlier in November 2021, Myah requested to meet with you to discuss the tax implications of a few non-routine transactions that took place during 2021. Myah has asked you to provide her with a detailed analysis for each issue presented below relating to the 2021 year only. Myah has asked that you provide explanations as well as any necessary calculations, as she would like to follow your logic. Transfer of Assets In January 2018, Myah transferred shares of Pubco Inc. (“Pubco”), a Canadian public company, to her husband Charlie. At the time of transfer, Charlie did not pay Myah anything for her Pubco shares, nor did Myah elect out of the spousal rollover in her 2018 tax return. Pubco declares and pays a $1,000 dividend annually to Charlie in June each year. Myah and Charlie decided to separate and began living apart in April 2021. Their two children, Max and Siobhan continue to live with Myah. Myah remembers your advice as to who was to report income from the Pubco shares in the past, but she would like to know whether this is still the case for 2021. Furthermore, she understands that Charlie sold the Pubco shares in October 2021 and wonders how they can determine who reports the capital gain or loss on the sale. Spousal RRSP In November 2020, Myah made a $8,000 contribution to Charlie’s RRSP which she deducted on her 2020 tax return. This was the first time Myah made a contribution to Charlie’s RRSP as she normally only contributes to her own RRSP. In February 2021, Charlie withdrew $2,000 from his RRSP. He withdrew another $3,000 from his RRSP in October 2021. Although it is no longer Myah’s business what her husband spends his money on, she would like to know whether these withdrawals should concern her. Support Payments Myah and Charlie’s separation was amicable. Since Myah and Charlie make enough money on their own, their separation agreement does not require either party to make spousal support payments. It does, however, require Charlie to pay Myah $2,500 a month in child support for Max starting in April 2021. Myah would like confirmation as to whether the receipt of support payments causes any tax issues for either herself and/or Max. Tax Credits Myah would like to know whether there are any tax credits available to her since both children are living with her. Neither Max nor Siobhan are infirm or eligible for the disability tax credit. Max and Siobhan each earn $1,000 of interest income on a T-Bill inherited from their deceased grandmother. (Page 1 of 2 - Continued on next page)
2 Loan Interest and Investment Income On January 1, 2021, Myah took advantage of the low interest rate of 4% on a line of credit offered by her bank, RBC. Myah borrowed $100,000 from RBC to purchase a $100,000 bond, at par, which matures in 5 years. The bond bears interest at 5% per annum, which is paid semi-
annually on June 30
th
and December 31
st
. On August 1, 2021, Myah decided to sell the bond for $90,000. Her kids were having a tough time with the news of the separation, so she used $10,000 of the $90,000 proceeds to make a gift of $5,000 to each of her children and spent another $15,000 on a Disney World vacation taking place next month. She used the remaining $65,000 of the proceeds to buy common shares of ABC Co. Myah would like to know the tax implications of the income and sale of the bond in 2021 as well as how much interest paid on the line of credit she can deduct in the year. The $100,000 loan will remain outstanding for the remainder of the 2021 year. Moving Expenses In September 2021, Myah received a promotion at CRI. Myah was thrilled about this as her salary would increase substantially, but it meant that Myah would have to work out of CRI’s Vaughan office. She is not exactly thrilled about uprooting the kids from their childhood home in Toronto, but Myah really wanted to take this opportunity as a ‘new start’ post separation. In mid September, Myah put her Toronto home up for sale and moved into a rental apartment in Vaughan, located 30 km from her Toronto home. The Vaughan office is a five-minute walk from her apartment. She incurred the following in moving costs: - House hunting trips of $200 - Moving van of $1,500 - Commissions and legal costs relating to the sale of Toronto home of $20,500 Myah’s employer did not reimburse any of these moving expenses, so she would like to know how much of these expenses are deductible in 2021. Myah is expected to earn $65,000 of income at the Vaughan location for the remainder of the year.
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Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 192 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night.
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asked her to make a presentation to the upcoming
accounting honor society's annual scholarship dinner. Her
firm supports the presentation because it hopes to recruit
more excellent employees like Bridget. The university is 196
miles from her office. In order to get to the dinner by 5:00
p.m., she will need to leave work at 1:00 p.m. She can drive
her personal car and be reimbursed $0.50 per mile. The
dinner ends at 9:00 p.m. Company policy allows her to spend
the night if the return trip is four hours or more. There is a
student-run inn and conference center across the street from
campus that charges $101 per night.
Instead of driving, she could catch a 3:00 p.m. flight that has
a round-trip fare of $300. Flying would require her to rent a
car for $39 per day and pay an airport parking fee of $25 for
the day. The company pays a per diem of $35 for incidentals
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Bridget Youhzi works for a large firm. Her alma mater has
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miles from her office. In order to get to the dinner by 5:00
p.m., she will need to leave work at 1:00 p.m. She can drive
her personal car and be reimbursed $0.50 per mile. The
dinner ends at 9:00 p.m. Company policy allows her to spend
the night if the return trip is four hours or more. There is a
student-run inn and conference center across the street from
campus that charges $101 per night.
Instead of driving, she could catch a 3:00 p.m. flight that has
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p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be
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miles from her office. In order to get to the dinner by 5:00
p.m., she will need to leave work at 1:00p.m. She can drive
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the night if the return trip is four hours or more. There is a
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- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 192 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $290. Flying would require her to rent a car for $40 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $36 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forward
- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 194 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $310. Flying would require her to rent a car for $40 per day and pay an airport parking fee of $24 for the day. The company pays a per diem of $36 incide ls the employee spends at least six hours out of town. (The per diem would be…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society’s annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 194 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $100 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $34 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forward
- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardBridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor society's annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00p.m. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is four hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round-trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem…arrow_forwardElisa Diaz is a social entrepreneur from the South. She is into a lot of interesting causes. Her fine taste is preeminent such that she is considered an authority in planning weddings. Upon the advice and prodding of an esteemed colleague, Maria Concepcion Manalo, Diaz decided to organize her wedding consultancy and named the business Weddings “R” Us.DateMay 1 Elisa Diaz invested P250,000. Rented office space and paid two months’ rent in advance, P8,000. May 2 Elisa Diaz issued promissory note for a P210,000 loan from Metrobank. The note carries a 20% interest per annum. That arrangement with the bank is that both the interest and the principal are payable in full in one year. Hired an office assistant and an account executive each with a P7,800 monthly salary. Or, each is to receive P300 per day for the 26-day work month. May 4 Acquired service vehicle for P420,000. Paid Prudential Guarantee and Assurance, Inc. P14,400 for a one-year comprehensive…arrow_forward
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