Accounting Practice - Pa1
Question 1:
a. 2 b. 2 c. 1 d. 2 e. 1 f. 2 g. 3 h. 3 i. 1 j. 2 k. 1 l. 3 m. 2 n. 2 o. 3 p. 4 q. 3 r. 1 s. 1 t. 2 u. 3 v. 4 w. 4 x. 1 y. 2
Question 2
a. Potential tax issues related to the payment Erin received in August:
1) For Erin: ➢ Based on the information provided, Erin’s employment with CCC was terminated in July 2009 and Erin was informed on July 31, 2009. Thus the payment Erin received in August is considered as pay in lieu of termination notice. Therefore, it is taxable income and should be reported as employment income in her tax return. But it seems that the amount of $9500 she received is net of tax amount (her total before tax salary for two moths is $12,000). She should contact CCC to get a T4 slip so that she will not be double taxed on $9500.
2) For CCC: ➢ Since the payment is related to pay in lieu of termination notice, the correct way that CCC should have done was to deduct income tax, CPP, EI and provided a T4 to Erin. And CCC should pay EHT on that payment too. But Worldwide actually paid the termination pay, CCC failed the responsibility of withholding the income tax, CPP and EI and paying EHT for that payment. No deductible expenses should be charged on CCC’s book.
3) For Worldwide: ➢ It seems that Worldwide withheld $2500 from Erin’s termination pay (total before tax salary $12000-net paid amount $9500), which might be charged under income tax payable and others deductions per USA tax act. From Worldwide’s perspective, the payment is deductible expenses. But in fact, since Erin is the employee of CCC, the payroll should be paid through CCC instead of Worldwide. In other word, income tax should be paid to Canada instead of USA.
Erin mentioned that the payment was meant to be non taxable since it was somehow related to
a. 2 b. 2 c. 1 d. 2 e. 1 f. 2 g. 3 h. 3 i. 1 j. 2 k. 1 l. 3 m. 2 n. 2 o. 3 p. 4 q. 3 r. 1 s. 1 t. 2 u. 3 v. 4 w. 4 x. 1 y. 2
Question 2
a. Potential tax issues related to the payment Erin received in August:
1) For Erin: ➢ Based on the information provided, Erin’s employment with CCC was terminated in July 2009 and Erin was informed on July 31, 2009. Thus the payment Erin received in August is considered as pay in lieu of termination notice. Therefore, it is taxable income and should be reported as employment income in her tax return. But it seems that the amount of $9500 she received is net of tax amount (her total before tax salary for two moths is $12,000). She should contact CCC to get a T4 slip so that she will not be double taxed on $9500.
2) For CCC: ➢ Since the payment is related to pay in lieu of termination notice, the correct way that CCC should have done was to deduct income tax, CPP, EI and provided a T4 to Erin. And CCC should pay EHT on that payment too. But Worldwide actually paid the termination pay, CCC failed the responsibility of withholding the income tax, CPP and EI and paying EHT for that payment. No deductible expenses should be charged on CCC’s book.
3) For Worldwide: ➢ It seems that Worldwide withheld $2500 from Erin’s termination pay (total before tax salary $12000-net paid amount $9500), which might be charged under income tax payable and others deductions per USA tax act. From Worldwide’s perspective, the payment is deductible expenses. But in fact, since Erin is the employee of CCC, the payroll should be paid through CCC instead of Worldwide. In other word, income tax should be paid to Canada instead of USA.
Erin mentioned that the payment was meant to be non taxable since it was somehow related to