June 30, 2022. Daniella, aged 41, works for St. David’s hos

June 30, 2022. Daniella, aged 41, works for St. David’s hospital as… June 30, 2022. Daniella, aged 41, works for St. David’s hospital as a Physiotherapist.Her husband, Barrie, aged 39, is a golf instructor. Annually, Daniella’s gross earningsare $102,000 and Barrie’s gross earnings are $69,000. They have one child, aged 7.Currently, Daniella and Barrie rent a two-bedroom townhouse in Oakville, Ontario. Toshorten the commute, and save money on gas, they purchased a new home inEtobicoke, Ontario. The listing received multiple offers, however Daniella and Barrie’soffer, for $1 million, was accepted by the sellers. Barrie was very excited, because itwould bring him closer to his sister Sophie.Prior to making an offer on the home, Daniella was able to lock in a five-year fixed,closed mortgage rate for 4.7% APR with a 25-year amortization period. They plan tomake monthly payments. Based on their research, Daniella and Barrie estimate theannual property taxes to be $3,900 per year.Current Assets and LiabilitiesDaniella and Barrie have saved approximately $216,000, for the purchase of their newhome. They manage their own investments, and annually they have been able togenerate a rate of return equal to 5.2%; Barrie believes that they will be able to continueto generate this rate of return until they retire. They give you the following informationregarding their current finances:Item MonthlyRent Expense $2,200Heating $70Utilities $60Internet $70Tenant Insurance $50Phone $110Groceries $800Entertainment $200Car Loan $450Car Expenses $300Child Care $600Miscellaneous $300Assets and LiabilitiesRESP savings $23,000Car $14,000Outstanding Car Loan ,000New Home Savings Account $216,000Chequing Account $43,000Daniella TFSA $52,000Barrie RRSP $9,700Credit Card Balance $1,480 After discussing their assets and liabilities with you, Daniella tells you that they plan onbuying a joint-first to die, mortgage life insurance policy with a face value of $150,000.Now that they have purchased their home, they plan on buying a homeownersinsurance policy that will cover $750,000 in damages to their home, with $2 million inliability coverage.Question 1 (50 marks).Ignore moving and closing costs. Answer the following and show your calculations forfull marks:A. Calculate Daniella and Barrie’s average tax rate, and marginal tax rate onordinary income for 2022. Assume their income does not change and they donot have any tax credits or deductions. (20 marks)B. If they move into their new home on July 1, 2022, what will be their monthlymortgage payments? (5 marks)C. Do they qualify for a conventional mortgage, under the normal mortgage rules, orwill they need to purchase insurance from CMHC? Use the current CMHC limitsof 39% for GDS and 44% for TDS. Note, you will need to stress test themortgage and calculate their mortgage ratios to answer this question. Thequalifying rate is 5.25%. (15 marks)D. What is the change in their net worth, the day they receive the home? Assumethey receive the home on July 1, 2022. Explain in words only. (2 marks)E. What is the balance outstanding on their mortgage, at the end of the 5-yearterm? (4 marks)F. If rates increase to 6%, at the end of the 5-year term, calculate their new monthlymortgage payments. (4 marks).G. Bonus Question. If they do not qualify for a conventional mortgage, based on thestress and the amount of money they have saved for the down payment, whatcan they do to avoid buying CMHC insurance? (2 marks) Question 2 (15 marks).Assume it is December 1, 2022, and the value of their home has appreciated; the homethey bought for $1 million in June is now worth $1.2 million, and the replacement cost ofthe home equals the market value of the home.Answer the following and show your calculations for full marks:A. Based on the revised value of their home, should they amend their homeowners’insurance coverage if their insurance company has an 80% coinsurance factor?(4 marks)B. If a covered peril occurred, and caused $200,000 worth of damage to their home,how much money would they receive from their insurance company if thecoverage they have remains the same? (5 marks)C. Assume that Daniella and Barrie have purchased life insurance and name eachother as the primary beneficiary to their life insurance policies. If Barrie passesaway, and Daniella receives the death benefit from the life insurance policy howmuch do they have to pay in taxes? Use the tax rates you calculated in Question1, Part A, if you need them. (2 marks)D. Fast forward into the future. It is now December 15th, 2022 and Daniella andBarrie have decided to sell their home. On December 22nd, they get an offerfrom a buyer for $1.3 million which they accept. The closing date, the date thatthe title will transfer to the buyers, is January 2nd, 2023. When filing their incometax returns, what tax year did the disposition occur? (2 marks) E. How much do they have to pay in taxes on the disposition of their home? Usethe tax rates you calculated in Question 1, Part A, if you need them. Assume the2022 tax rates do not change in 2023. (2 marks) Accounting Business Financial Accounting ADMS 3541

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