Choose the Statement That Correctly Summarizes the Tax Advantage of Raising

question 116

Multiple Choice

Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock:

• A)The amount paid by the corporation to redeem bonds at maturity date is deductible in computing income subject to corporate income tax.
• B)Interest payments are deductible in determining income subject to corporate income tax;dividends are not deductible.
• C)A corporation must pay tax on the sales price of stock issued,but is not taxed on the amount received when bonds are issued.
• D)Both interest and dividends paid are deductible in computing taxable income,but since interest must be paid annually,the corporation usually gets a larger tax deduction over the life of the bonds payable.

---

Definitions:

Selling Shares

The act of disposing of ownership units in a company, usually in the form of stocks, to another party.

Corporation

A legal entity that is separate and distinct from its owners, which can own property, incur debt, sue and be sued.

Provincial Agency

A government organization or entity that operates at a provincial level, responsible for administering specific services or regulatory functions.

Issuance and Trading

Refers to the process of issuing new securities, like stocks or bonds, and their subsequent buying and selling on markets.