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Problem 3-1

(Text: Ch. 3)
The following information for 2014 has been presented to you by Paula Promoter, the
new vice-president of marketing for a public Canadian oil company, Overpriced
Petroleum Limited. Paula, who is 52 years old and now lives in Calgary, travels
extensively across Canada. Paula, whose duties involve the negotiating of contracts,
began her employment with Overpriced Petroleum on January 1, 2014.
Receipts and Fringe Benefits 2014
Salary net of payroll deductions ..... .......................................................
Director fees ..............................................................................................
Receipt of an amount, not to compete, from former employer ...................
Termination payment from former employer ..............................................
Travel allowance (Note (1) below):
Accommodation and meals @ $200 per day for 150 days....................
Car operating cost allowance @ 45 per kilometre plus $10 per day
of travelling for business travel only (9,000 kilometres) for 150
days .................................................................................................
Income protection receipts received from Regal Assurance (Note (2)
below)....................................................................................................
Benefits paid by the corporation:
Registered pension plan .................................................... $ 4,000
Extended health care Liberty Mutual ............................
2,125
Group income protection premiums
Regal Assurance (Note (2) below) ........................
710
Membership fee in Petroleum Club (membership
required by all employees)
initiation fee ...........................................................
1,000
annual fee...............................................................
2,500
Moving costs (Note (3) below) .........................................
42,000
Group term life insurance (coverage is $300,000)............
600
Loans by company (Note (4) below) ................................ 160,000
Payroll deductions and selected disbursements 2014
Payroll deductions:
Income taxes withheld....................................................... $ 41,500
Registered pension plan (defined benefit)
current contribution ...............................................
4,000
Canada Pension Plan contributions ...................................
2,426
Employment insurance contributions................................
914
Group income protection premiums (Note (2)) ................
710
Purchased 2,000 common shares on July 1, 2014 under a stock
option plan at a price of $25 per share. Fair market value of
shares at the date of purchase was $35. Fair market value of
the shares was $25 per share on the date when the option
was granted ..............................................................................
Legal fees paid in connection with the collection of the $50,000
non-competition receipt from her previous employer .............

$50,450
5,000
50,000
8,000
30,000
5,550
15,000

$212,935
$377,035

$49,550

50,000
5,000

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Problem 3-1 (Cont.)


Notes and Additional Information:
(1) Paulas actual travelling and car expenses, which she is required to pay
according to the terms of her employment contract, are as follows:
Meals ........................................................................................................... $11,250
Accommodation ...........................................................................................
23,750
Travel costs (other than car see below) reimbursed by company
6,000
Car expenses (9,000 kilometres for business purposes out of total kilometres of
16,000):
Gasoline
$1,700
Maintenance
800
Auto accident costs while on a business trip
1,600
Insurance
1,800
Licence
90
Interest paid on car loan (see Note (4), below)
300
$6,290

(2) The company paid 50% of the premium to Regal Assurance re income protection
payment. During 2014, Paula received $15,000 in periodic payments in respect of
an eight-week illness.
(3) Although Paula started to work for Overpriced Petroleum on January 1, 2014, her
family did not move to Calgary from Toronto until February 28, 2014. The
company paid for all the moving costs of $12,000, an actual loss on the sale of
Paulas Toronto home of $25,000 and a disruption allowance of $5,000.
(4) Paula obtained two loans from the company as part of her employment contract:
(a) Loan of $150,000, dated July 1, 2014, to acquire a new home in Calgary. The
loan bears annual interest at 2% and is repayable over a 25-year period in equal
annual instalments on the anniversary date of July 1. Interest is payable on the
same date.
(b) Loan of $10,000, dated January 1, 2014, to assist in the acquisition of a car
acquired in early January 2014 for $35,000 (excluding GST; no PST in
Alberta) to be used in connection with her duties of employment. The loan
bears annual interest at 3%, and is repayable over the next three years in equal
annual instalments. Interest is payable December 31 each year. Paula paid the
interest for 2014 on time on December 31, 2014.
(NOTE: For simplicity you may assume that the prescribed interest rate is a constant 4%
for all quarters.)
Required:
(A) Determine Paula Promoters employment income for 2014 in accordance with
Subdivision a of Division B. Ignore the effects of a leap year in your answer.
(B) Indicate why you have excluded any of the above amounts from your answer in
part (A).

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