Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community for help and clear up your study doubts
Discover the best universities in your country according to Docsity users
Free resources
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
FP1 / Practice Exam 2 QUESTIONS WITH COMPLETE 100% VERIFIED SOLUTIONS 2024/2025
Typology: Exams
1 / 13
Vivian buys a life insurance policy in which the insurer pays policyholders dividends based on how well the life insurer is doing. If the insurer is profitable, Vivian will receive dividends. If the insurer underperforms financially, Vivian and other policyholders will receive fewer dividends. Indicate the type of insurance policy Vivian purchased. A. Variable life insurance. B. Participating life insurance. C. Limited-pay life insurance. D. Non-participating life insurance B. Participating life insurance. Choose the type of insurance that combines term and whole life for a predetermined contract period and guarantees a sum of money for either the beneficiar(ies) or at the end of the term for the contract holder. A. Variable life insurance. B. Universal life Insurance. C. Permanent life Insurance. D. Endowment life insurance. D. Endowment life insurance. Endowment life insurance is a combination of term life and whole life. It provides coverage for a specified period of time (usually to age 65) and builds cash value. If the insured should die during the period of coverage, the beneficiary receives the face amount of coverage. If the insured does not die during the period of coverage, the policy owner receives the entire face value of the policy as a cash payment and the insurance coverage ceases. Reference: Module 4, Section 2. Select the type of insurance that can be extended, at the option of the policyholder, at the end of the term without medical evidence of insurability. A. Level term insurance. B. Decreasing term insurance.
C. Convertible term insurance. D. Renewable term insurance. D. Renewable term insurance. Renewable term insurance allows for the policy to be extended for another term of equal length without the insured having to provide medical evidence of insurability. Henry, a 48 year-old director of engineering at an environmental firm, has $50,000 in Canada Savings Bonds on which he earns 3% interest annually. He has paid off the mortgage on his house but he has an outstanding $30,000 bank loan (taken out for home improvements) on which he pays 6% interest. His marginal tax rate is 50%. Select the action an advisor is most likely to recommend to Henry? A. Cash in $30,000 of CSBs and pay off the bank loan. 0% B. Don't do anything; let the situation remain as it is. C. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $30,000 and invest it in a conservative balanced fund. D. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $50,000 and invest it in an aggressive equity fund. C. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $30,000 and invest it in a conservative balanced fund. The most likely recommendation involves paying off the bank loan by cashing in CSBs and then borrowing the previous loan amount and investing it so that interest on the new loan becomes tax deductible. While borrowing more than the previous loan amount (in C.) could be an option, it would change the risk profile and risk tolerance level, and that may not be the best route to take. Jacob who is about to retire, strategically moves a major portion of his investment portfolio into Canada Savings Bonds (CSBs), guaranteed funds and money market funds. Select the loss control technique he implemented to reduce his exposure to potential equity market declines in his retirement years. A. Loss reduction. B. Loss carryover. C. Loss prevention. D. Loss avoidance. D. Loss avoidance.
Loss avoidance is not exposing one's self to a particular risk. The loss of capital due to a stock market crash can be avoided by investing in guaranteed term deposits rather than in equities. What type of risk retention is a form of "self-insurance" or handling the unavoidable risk internally? A. Active risk retention. B. Tangible risk retention. C. Passive risk retention. D. Intangible risk retention. A. Active risk retention. With active risk retention, the client is aware of the risk and deliberately plans to retain all of part of it. A car owner with an older, low value vehicle retains the risk of loss by choosing not to insure it against collision damage. Karl and Ilse are married and in their early 60s. Karl's taxable income is $95,000 while Ilse's taxable income is $32,000. Each has given $1,000 in donations to the local humane society and been issued tax receipts. What tax planning advice is most appropriate regarding the reporting of their charitable donations? A. Karl should claim the $1,000 in his tax return this year while Ilse should wait up to 5 years until she is in a higher tax bracket. B. They should combine the receipts and Ilse should claim the total in her tax return this year. C. Each of them should claim the $1,000 in their tax return this year. D. They should combine the receipts and Karl should claim the total in his tax return this year. D. They should combine the receipts and Karl should claim the total in his tax return this year. They would benefit the most by having Karl claim $2,000 in charitable donations in his tax return this year since Karl has higher taxable income. Hiba has a Power of Attorney for her brother's affairs. Select the action(s) that she can perform on behalf of her brother. [I] Sell securities. [II] Change will. [III] Purchase property [IV] Change beneficiary designations.
C. I and III only. A Power of Attorney grants Hiba the ability to sell securities and purchase property, but, not to change a will; the ability to change a beneficiary designation is not generally considered permissible with a Power of Attorney. Haspreet, a resident of Saskatchewan, executed a will prior to meeting and marrying Haseeb. Select the most accurate statement regarding the status of Haspreet's will. A. Valid. B. Valid only if notarized. C. Valid with marital codicil. D. Revoked. D. Revoked. With the exception of Quebec, all provincial statutes provide that a marriage subsequent to the preparation of a will results in a revocation of the will. This policy attempts to make provision for the new spouse. The statutes of Ontario, Nova Scotia and New Brunswick permit a spouse to elect to have the pre-existing will of the other spouse not revoked. Marc's client collects antique china. She wishes to leave specific pieces to family members in her will, but, is concerned that she will have to frequently update the will to reflect her changing collection. Decide what document Marc should recommend to this client. A. Mandate. B. Memorandum. C. Holographic will. D. Notarial will. B. Memorandum. Sometimes it is more practical for the testator to prepare a list of objects and their beneficiaries and keep the list filed with the will. This list is called a memorandum and it can be referenced in the will. Thus, every time a change becomes necessary because, for example, items are added to or removed from the testator's assets, it becomes necessary only to revise the list and not the will itself. Indicate the type of power of attorney for property that continues to be legally effective even after the donor becomes mentally incompetent. A. General power of attorney. B. Specific power of attorney.
C. Special power of attorney. D. Enduring power of attorney. D. Enduring power of attorney. The most common tool in planning for mental incapacity is the power of attorney for property and financial matters called an enduring or continuing power of attorney. The fact that the power of attorney is to be enduring (that it specifically continues in force during the incapacity of the grantor) must be spelled out in the document. Otherwise, the powers granted under the PA cease to be valid when the grantor ceases to have mental capacity, which is when the PA is needed most. Carlisle has asked his adviser for advice about drafting a Power of Attorney for his personal assets. He wishes to appoint his brother, but is concerned that as his brother travels frequently for business he might not be available at all times if needed. Choose the recommendation that Carlisle's adviser might make. A. Contingent Power of Attorney. B. Personal Care Power of Attorney. C. Substitute Power of Attorney. D. Power of Attorney for Property. C. Substitute Power of Attorney. A Substitute Power of Attorney is useful where the attorney may not be able, or willing, to act for any or all of the period. A substitute attorney should be named to avoid the costs and delays of applying to a court to name a substitute. Gary has specific wishes regarding health care in the instance of severe injury. He is concerned that these will be followed. Indicate what his advisor could recommend to Gary to help him to achieve this goal. A. Power of Attorney. B. Living will. C. Contingent Power of Attorney. D. Advanced Care Directive. D. Advanced Care Directive. An advance care directive or advance healthcare directive is a form of legal document by which a person seeks to consent to, or refuse, medical care or treatment in advance of need. Shabhana and Ravi are 58 and 67 years old respectively and have been married for 35 years. They have a condo in the city and a cottage by a lake, both jointly held. They have only one child,
Sachin, who is 32 years old and will eventually inherit their entire estate. The cottage's value has gone up substantially since they purchased it. Shabhana and Ravi want to obtain life insurance so that Ravi has a lump sum available when capital gains taxes become payable on the cottage. Which of the following life insurance policies would be most suitable in their situation? A. A joint life first-to-die policy. B. A separate policy on Ravi's life and on Shabhana's life. C. A policy on Shabhana's life only. D. A joint life last-to-die policy. D. A joint life last-to-die policy. The tax liability will arise on the second death and therefore a joint life last-to-die policy will be ideal in their situation. A separate policy on their individual lives would be more expensive. What is the earliest age that you can begin receiving benefits from the Canada Pension Plan or the Quebec Pension Plan? A. 50 B. 55 C. 60 D. 65 C. 60 The earliest age you can begin receiving benefits from CPP or QPP is age 60. Which statement about a defined contribution pension plan is correct? A. Plan participants are paid a specified benefit at retirement. B. Benefit amount at retirement is known much ahead of retirement C. The value of the plan at retirement is not known in advance by the participant or employer D. The risk of fund shortfall rests with the employer. C. The value of the plan at retirement is not known in advance by the participant or employer. The value of a DCPP fluctuates depending on the performance of the investments held within it. As such, what the plan value will be at retirement is not known by either the participant or the employer. Helen plans to work until her 68th birthday in 2010. She has already applied to start receiving Canada Pension Plan (CPP) benefits right after her birthday. Her husband plans to retire at the same time and apply for CPP benefits just as he turns 63. If CPP/QPP benefits are $765 at age 65, calculate their combined CPP/QPP monthly pension?
CPP pension benefits are permanently reduced by 0.5% for every monthly taken before age 65 and permanently increased by 0.5% for every month postponed past age 65. CPP cannot commence earlier than age 60 or later than age 70. Helen's benefit [(3 x 12) x 0.5%] x $765 = $137.70; $765 + $138 = $903. Helen's husband's benefit [(2 x 12) x 0.5%] x $765 = 91.80; $765 + $92 = $673; $903 + $673 = $1,576. How long can a client's registered retirement income fund (RRIF) remain open? A. Until age 69. B. Until age 80. C. Until age 90. D. There is no maximum age. D. There is no maximum age. A RRIF is designed to run until the client dies. Bart works for ABC Company and is a member of the company's defined benefit pension plan. Where does the risk of a shortfall in the accumulated pension plan relative to the reserves needed to support the members' pensions lie? A. Bart. B. The ABC company. C. The provincial government. D. The federal government. B. The ABC company. In a defined benefit plan, the employer is responsible for funding shortfalls. It is December 31, 2015. Scott, a 45-year old Canadian resident has a Tax-Free Savings Account (TFSA). The fair market value of the TFSA is $45,000. Scott's unused TFSA contribution room at the end of last year was $12,000. Last year, Scott took a distribution from his TFSA of $4,000. Assume that for that year, the TFSA contribution limit is still $5,000. This year, Scott has not made any TFSA contributions. Calculate Scott's unused TFSA contribution room.
Contribution room every year consists of the TFSA dollar limit for that year plus any withdrawals made in the preceding year, along with any unused contribution room. In this scenario, $12,000+$5,000+$4,000 = $21,000. Choose the accurate statement regarding who can contribute to a Tax-Free Savings Account (TFSA). A. Canadian citizens under the age of 65. B. Canadian residents age 18 or older. C. Non-residents over the age of 18. D. Non-residents over the age of 71. B. Canadian residents age 18 or older. Canadian residents aged 18 or older may contribute to a TFSA; non-residents may not. There is no maximum age for contribution to a TFSA. Calculate the accounting rate of return on a stock purchase of $5,250 that is sold at the end of one year for a gain of $375. Round your answer to 2 decimal places. A. 6.38%. B. 7.14%. C. 7.69%. D. 9.30%. B. 7.14%. The accounting rate of return is calculated as (net gain or loss)/Initial investment x 100. Therefore, in this case, the return would be calculated as $375/5,250x100=7.14%. Sean owns $10,000 face value of real return bonds with a real yield at maturity of 4%. Inflation is 1.25% over the six months since issue. Calculate the interest payment for the first 6 months. A. $275. B. $400.
10,000 adjusted for the 1.25% inflation rate = $10,125. The interest rate of 4% is applied to this adjusted face value for an interest payment of $405. Select the correct statement regarding RESPs. A. Contributions to the plan are tax deductible and funds accumulate on a tax-deferred basis within the plan. B. There is a maximum annual contribution to an RESP. C. A household with family income of $100,000 will receive a Canada Education Savings Grant payment of 15% of the first $2,500 contribution made to the RESP in a year. D. If a child does not pursue post-secondary education and certain conditions are met, the subscriber can transfer the accumulated income payments to their own or a spouse's RRSP. D. If a child does not pursue post-secondary education and certain conditions are met, the subscriber can transfer the accumulated income payments to their own or a spouse's RRSP. If the RESP beneficiary does not pursue post-secondary education by age 21, the RESP has been in existence for at least 10 years and the subscriber is a Canadian resident, the subscriber can withdraw the RESP earnings, which are then referred to as accumulated income payments (AIPs). If the subscriber or subscriber's spouse has suffi cient RRSP contribution room, the AIPs may be transferred to claim the RRSP tax deduction, which will fully offset taxes payable on the AIPs. Bob earns $500 in dividends from his $5,000 common share investment that he invested in instead of a $5,000 bond investment that would have earned him $750. Calculate the financial cost of Bob's share investment. A. $250. B. $4,500. C. $5,000. D. $5,250. C. $5,000. The financial cost of his investment is the dollar amount that represents the investor's initial investment into the asset. Thus, Bob's financial cost is $5,000. Based on the Fisher Equation, calculate the expected (real) rate of return for a 3-year GIC with an 4% interest rate and an expected inflation rate of 1.5% for the 1st year. Round your answer to 2
decimal places. A. 1.04%. B. 2.46%. C. 2.50%. D. 4.0%. B. 2.46%. The Fisher Equation is: (1 + real rate) = (1 + nominal rate) / (1 + expected inflation rate). Therefore, in this case, the risk would be calculated as: (1+real rate)=(1+.04)/(1+.015) Giving you a final answer of 2.46. Which deduction(s) can an individual claim to arrive at taxable income for a particular year? [I] Stock options. [II] Charitable donations. [III] Home relocation loans. [IV] Net capital losses of other years. A. I, III and IV only. Charitable donations provide a tax credit, not a tax deduction. Which date of residence generally determines the province in which the taxpayer pays provincial tax? A. January 1. B. January 31. C. December 1. D. December 31. D. December 31. Residence on December 31st determines the province in which the taxpayer pays provincial tax. Roberta is a single mother with two children. Robin is 19 years old and Ben is 15. Roberta provides you with the following information for the pervious taxation year: Gross employment income $83, Taxable amount of dividend from a Canadian public corporation 1, Non-capital loss carry-forward from previous year
Canada Pension Plan contribution 1, Employment Insurance contribution 729 Political contribution to a federal party 800 Roberta paid $4,100 for dental surgery. Robin attended university for eight months and her tuition fees were $3,000; she had a part-time job in the summer and earned $2,000, her only income. Ben's income for the year was $1,500. Calculate Roberta's taxable income for the previous taxation year. A. $53, B. $83, C. $84, D. $85, A. $53, ($83,201 + $1,250 - $31,276) = $53, At the federal level, when more than one person supports a child, who can claim the childcare expense deduction? A. The lower income earner must claim the deduction, subject to some exceptions. B. The lower income earner must always claim the deduction, with no exception. C. The higher income earner must always claim the deduction, with no exception. D. The deduction can be split between the two supporting individuals. A. The lower income earner must claim the deduction, subject to some exceptions. If more than one person supports the child, the deduction must be claimed by the person with the lower amount of net income, subject to some exceptions. Which statement correctly describes the taxation of eligible dividends for 2011? A. Dividends received are grossed-up by 25% on an individual's tax return. B. The offsetting federal dividend tax credit is 16.44% of the grossed-up dividend. C. Dividends received are grossed-up by 50% on an individual's tax return. D. The offsetting federal dividend tax credit is 13.33% of the grossed-up dividend.
B. The offsetting federal dividend tax credit is 16.44% of the grossed-up dividend. The federal dividend tax credit is 19% (rounded) of the grossed-up amount of dividends. Finn earned $85,000 in salary from his job as an engineer. He earned $3,000 in interest income. He made RPP contributions of $2,119 and contributed $15,000 to his RRSP. Given the following schedule of federal income tax rates and ignoring tax credits, calculate the amount of federal income tax Finn would have to pay. 15% on the first $40,726 of taxable income, + 22% on the next $40,726 of taxable income (on the portion of taxable income between $40,726 and $81, 452), + 26% on the next $44,812 of taxable income (on the portion of taxable income between 481,452 and $126, 264), + 29% of taxable income over $126, A. $12,083. B. $12,743. C. $13,209. D. $16,509. B. $12,743. Finn's taxable income is $70,881 [$85,000 + $3,000 − $2,119 − $15,000]; 15% on $40,726 = $6,109 + 22% on $30,155 = $6,634, so federal tax payable is $12,743. Select the employee benefits that are taxable to the employee. [I] Low-rent housing provided in Calgary by an employer. [II] Holiday trip given as a reward by an employer. [III] Life insurance premiums paid by an employer. A. I only. B. I and III only. C. II and III only. D. I, II and III. D. I, II and III. Subsidized housing, free holiday trips and life insurance premiums paid by employer are all treated as taxable benefits.
Which employment benefit is considered to be tax-free (i.e., non-taxable)? A. Employer-paid courses for personal interest. B. Holiday trips, prizes and incentive awards. C. Payment of provincial health insurance premiums. D. Counselling services related to mental or physical health. D. Counselling services related to mental or physical health. Any counselling services related to an employee's mental or physical health are not taxable. Select the correct statement(s) about tax deductions. [I] Capital losses can be deducted from employment income. [II] Spousal support payments are deductible by the payer. [III] Child support payments are deductible by the payer. A. I only. B. II only. C. I and II only. D. II and III only. B. II only. While spousal support payments are deductible by the payer, child support payments are not.