MGFB10H3 Chapter : Section 3.5 Notes

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lavenderdonkey6

1 Jun 2011

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Canadian taxes are levied on both personal and corporate income, but the government recognizes the potential for double taxation of income earned through a corporation and designed a partially integrated system. Us operates a classical system of double taxation, while europe, by and large, operates a fully integrated system. Summary of learning objectives: describe the canadian tax system and explain the differences between how a corporation and an individual are taxed. Canadian taxes are levied on both personal and corporate income, but the government recognizes the potential for double taxation of income earned through a corporation and has designed a partially integrated system.

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In deciding which entity to use for a new business, it is good to review the benefits and disadvantage of each one. A corporation According to e-text (page 1094) A corporation is liable to third person for the act of it is officers, employees, and agent to the same extent that a natural person is liable act of agents and employees. Because of the corporation is a separate legal person debt, the debts that owe are ordinarily the obligation of the corporation only. It is good to know the advantage and the person itself is not responsible of the corporation debts because nobody want debts that goes after their personal properties. I think thatâs the reason business owner choose a form of corporation however, the double taxation of appreciated assets on sale or dissolution is a bad disadvantage but it can be a right choice for certain situation because nobody wants to hold liable for their business debts, or personal income or any other personal assets. An owner always wants taxable profit and retain growth to pay down their business debts, even though the corporations taxes are extremely higher than a LLC, but I still recommended a business to choose a corporation that better benefit for them. A LLC taxes are lower but owner is personally obligator to any debts. It is good to know that corporation can also deduct disability insurance for owner-employees which is a significant advantage, reduced gain for capital gain and audit potential for tax liability A corporation enjoys limited liability, while partner is personal liable for the business. Frost, T. S. (1984). In regard to taxes, a corporation can generate tax saving if the corporate tax rate is lower than the personal one and if earning is retained in the corporation. the worse part will be the shareholder because they can be held personally liable for corporate debt and the creditor can now go after the shareholder property and their bank account and other assets that satisfy their dues. Frost, T. S. (1984). Tax aspects of the form of doing business. Dun and Bradstreet, Inc.D & B Reports, 22(1), 58. Starkman, J. (2007). Advantages of a C corporation. The Tax Adviser, 38(10), 617-618.

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The book value of a plant asset is:

a. the fair market value of the asset at a balance sheet date.

b. the asset's acquisition cost less the total related depreciation recorded to date.

c. equal to the balance of the related accumulated depreciation account.

d. the assessed value of the asset for property tax purposes.

sangriacockroach968

DataPoint Engineering is considering the purchase of a new piece of equipment for $410,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $230,000 in nondepreciable working capital. Seventy-seven thousand dollars of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12â11, Table 12â12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Year	Amount
1	$	236,000
2		194,000
3		164,000
4		149,000
5		112,000
6		102,00

The tax rate is 30 percent. The cost of capital must be computed based on the following:

		Cost (aftertax)			Weights
Debt	K_d		10.20	%		30	%
Preferred stock	K_p		12.50			20
Common equity (retained earnings)	K_e		19.00			50

a. Determine the annual depreciation schedule.

Year	Depreciation Base	Percentage Depreciation	Annual Depreciation
1
2
3
4
5
6
			$0

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The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $100,000. Of this amount, $80,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $20,000. The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. The contract will require an additional investment of $42,000 in working capital at the beginning of the first year and, of this amount, $22,000 will be returned to the Spartan Technology Company after six years. The investment will produce $40,000 in income before depreciation and taxes for each of the six years. The corporation is in a 30 percent tax bracket and has a 15 percent cost of capital

. a. Calculate the net present value

Net present value

ultramarinellama120

MGFB10H3 Chapter : Section 3.5 Notes

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