Taxation for Decision Makers Test Bank

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Chapter 1: Introduction to Taxation1Chapter 1Introduction to TaxationNote to Instructor:Thereference tables in the appendix of the textmay berequired for a limited numberof answers to the questions and problemsin this chapter. This is indicated by “REFERENCE TABLESREQUIRED” after the learning objective.True-False:InsertTforTrueandFforFalsebefore the questions.______ 1. A hidden tax is one that is included with a payment but not specifically identified.ANSWERTrue LO 1.1DIFFICULTY: Easy_____2. Both sales and use taxes are collected in the state in which the sale takes place.ANSWERFalse LO1.DIFFICULTY: Easy_____3. The person giving the gift pays the gift tax.ANSWERTrue LO1.1DIFFICULTY: Easy_____4.The value added tax is a type of consumption tax.ANSWERTrue LO1.1DIFFICULTY: Easy_____5. The type and degree of connection between a business and a state necessary for a state toimpose a tax is referred to as nexus.ANSWERTrue LO 1.1DIFFICULTY: Easy_____6. The 16thAmendment to the US Constitution that provided for an income tax was ratified in1913.ANSWERTrue LO 1.1DIFFICULTY: Easy_____7. Any current changes to the tax laws are now amendments to the Internal Revenue Code of2016.ANSWERFalse LO 1.1DIFFICULTY: Easy_____8. A flat tax generally would be considered a regressive tax.

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2Taxation for Decision Makers Test BankANSWERFalse LO1.2DIFFICULTY: Easy_____9.Adam Smith’s four canons of taxation are Equity, Certainty, Economy and Convenience.ANSWERTrue LO1.3DIFFICULTY: Easy_____10. Vertical equity asserts that persons in similar circumstances should face similar tax burdens.ANSWERFalse LO 1.3DIFFICULTY: Easy_____11. There arethreebasic taxable entities: the individual, the fiduciary,and the C corporation.ANSWERTrueLO1.4DIFFICULTY: Easy_____12.All interest paid to ataxpayer must be included in grossincome.ANSWERFalseLO1.4DIFFICULTY: Moderate_____13.The lowest tax rate onthe tax rate schedules fortaxable incomes is the same for individualsand C corporations.ANSWERFalseLO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy_____14. A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.ANSWERFalse LO 1.4DIFFICULTY: Easy_____15.Corporations areonlyallowed to carry their net operating losses forward.ANSWERFalse LO5.DIFFICULTY: Moderate_____16.All limited liability companies (LLCs) can file their tax returns as partnerships, or electively,as corporations.ANSWERFalse LO1.5DIFFICULTY:Moderate_____17. Partnerships and S corporations are flow-through entities.ANSWERTrue LO1.5DIFFICULTY: Easy

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Chapter 1: Introduction to Taxation3Short-Answer Questions:Provide a brief written answer to each of the following questions.1. Name and describe two types of taxesother thanthe income tax. Give example of each.ANSWERWealth taxes are those taxes levied on the value of property owned by a taxpayer.Examples include real estate taxes, tangible taxes, intangible taxes, and inventory taxes.Wealth transfer taxes are those taxes levied on the value of property transferred to another. Examples arethe gift, estate, and inheritance taxes. Consumption taxes are taxes levied on the value of goods orservices that are purchased for consumption. Examples include sales, use, excise, and value added taxes.LO1.1DIFFICULTY: Easy2. Compare a sales tax to a use tax.ANSWERA sales tax is levied on a purchase at the point of sale regardless of the state of residenceof the purchaser. A use tax is levied on a purchased item brought into a different state for use when a salestax is not paid by the purchaser in the state where the item was purchased. Normally the sales and usetaxes in a specific state are levied at identical rates.LO1.1DIFFICULTY: Moderate.3. Differentiate a wealth tax from a wealth transfer tax and give an example of each.ANSWER:A wealth tax is a tax levied on the value of a person’s possessions at a specific point intime; common wealth tax would be real estate taxes that are levied on the owner of real propertyorintangible taxes on stocks.The wealth transfer tax is levied on the value of a person’s possessions that aretransferred to another person; the gift and estate taxes are examples of wealth transfer taxes.LO 1.1DIFFICULTY: Moderate4. Compare progressive, proportional, and regressive taxes.ANSWERThe tax rate in a progressive system of taxation increases at a greater rate than the rate ofincrease in income. The higher the income, the greater the percentage of taxes paid. The tax rate in aproportional system of taxation increases at the same rate as the rate of increase in income. Thepercentage of taxes paid would be the same over all income levels. The tax rate in a regressive system oftaxation increases at a slower rate than the rate of increase in income. The higher the income, the smallerthe percentage of taxes paid.LO 1.2DIFFICULTY: Moderate5. What are Adam Smith’s four canons of taxation? Briefly describe each.ANSWERCertainty—ataxpayer knows what the tax consequences of a transaction will be when thetransaction is undertaken. Equity—the tax is fair relative to the taxpayer’s level of income andcircumstances. Economy—the costs of administering and complying with the tax are small relative to theamount of taxes collected. Convenience—the payment of taxes is simple and easy.LO1.3DIFFICULTY: Easy

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4Taxation for Decision Makers Test Bank6.Explain how horizontal equity differs from vertical equity.ANSWERHorizontal equity would require taxpayers withsimilar incomes to pay a like amount oftaxes. Vertical equity would require taxpayers with greater (lesser) incomes to pay a greater (lesser)amount of taxes.LO1.3DIFFICULTY: Easy7. What tax provision encourages the fiduciary of and estate or a trust to distribute the income annually tothebeneficiaries?ANSWER:The tax rates applicable to the income that a trust or an estate receives are far moreprogressive than any other entity; they have not 10 or 35 percent tax rates and thehighest tax rate (39.6%)beginsat $12,400 of taxable income.LO 1.4DIFFICULTY: Easy8. Briefly compare a sole proprietorship to a corporation as a business entity.ANSWERA sole proprietorship has only one owner; a corporation can have one or an unlimitednumber of owners. The corporation has limited liability; the sole proprietor is responsible for theliabilities of the business. There generallyarefew if any legal requirements to establish a soleproprietorship; a corporation must be incorporated under the laws of one of the states and have acorporate chapter. The sole proprietor cannot take advantage of employee status and reports all results ofoperations on his or her own tax return. A shareholder-employee of a corporation is eligible for fringebenefits and the corporation files a completely separate tax return from that of any owner. There are otherdifferences as well, too numerous to mention.LO1.5DIFFICULTY: Moderate9. Why are S corporations and partnerships called flow-through entities?ANSWERScorporations and partnerships are called flow-through entities because they do not paytaxes on their incomes and gains. Instead the revenue and expense items flow through to the entity’sowners and are included in and taxed along with the owners’ other income.LO1.5DIFFICULTY: Easy10. What are the fiduciary entities and how are they created?ANSWERThe two fiduciary entities are the trust and the estate. A trust is created by a grantor whoplaces assets in trust for the benefit of another person. A trustee manages the trust assets. An estate iscreated anytime a person who owns or has an interest in assets subject to estate taxes dies.LO1.5DIFFICULTY: Easy

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Chapter 1: Introduction to Taxation5Problems:Provide numerical solutions for each of the following.1.The Walstore Shoe Market had $1,875,000 of shoe sales and its cost for these shoes was $688,000. Inaddition,Shoe Market received $5,000 of corporate bond interest and $6,000 interest on State ofCalifornia bonds. It paid $512,000 in salaries and had $552,000 of other operating expenses. What isShoe Market’s taxable income? What is its income tax liability?ANSWER$128,000 taxable income;$33,170taxTaxable income = $1,875,000-$688,000 + $5,000 interest-$512,000 salaries-$552,000 expenses =$128,000.[Interest on state bonds is tax exempt.]Income tax = ($50,000 x .15) + ($25,000 x .25) +($25,000 x .34) + ($28,000 x .39) = $33,170.LO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Moderate2.Walter ismarriedandfiles a joint return. If his adjusted gross income is $64,000 and he has $32,850ofdeductionsin 2016, what is his taxable income? What is his income tax liability?ANSWER$31,150;taxable income;$3,745taxTaxable income = $64,000–($32,850 indeductions) = $31,150.Income tax = [($31,150-$18,550) x .15]+$1,855 = $3,745.LO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Moderate3.Susie is single, has salary income of $26,000, and $10,350of deductionsin 2016. What is hertaxableincome? What is her income tax liability?ANSWER$15,650 taxable income;$1,883.75taxTaxable income = $26,000-10,350deduction= $15,650;Income tax = ($9,275x .10) + [($15,650-$9,275) x .15] = $927.50 + $956.25 = $1,883.75LO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Moderate4.Cragen Corporation has gross income of $625,000 and operating expenses of $418,000. What is itstaxable income? What is its income tax liability?ANSWER$207,000 taxable income;$63,980taxTaxable income = $625,000-$418,000 = $207,000.Income tax = ($50,000 x .15) + ($25,000 x .25) +($25,000 x .34) + ($107,000 x .39) = $63,980LO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy5. Chloe and Bill, both single with no dependents,plan to marry either immediately before orimmediately after year-end. Chloe’s taxable income for 2016is $89,000 and Bill’s is $86,000 beforethe$10,350 totalfor each of theirdeductions.Would they have a marriage penalty or a marriagebenefit if they married at the endof 2016?ANSWERMarriage penalty.

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6Taxation for Decision Makers Test BankAs single taxpayers:Chloe’s taxable income: $89,000-$10,350standard deduction= $78,650. Bill’staxable income: $86,000-$10,350deduction= $75,650.Chloe’s income tax: ($9,275 x .10) + ($28,375x .15) + ($27,650 x .25) = $15,433.75.Bill’s income tax: ($9,725 x .10) + ($28,375 x .15) + (38,250 x.25) = $14,683.75.Total tax as single taxpayers: $15,468.75 + $14,718.75 = $30,187.50As a married couple:Taxable income: $89,000 + $86,000–(2 x $4,050)-$12,600standard deduction=$154,300.Their income tax: ($18,550 x .10) + ($56,750 x .15) + ($76,600 x .25) + ($2,400x .28) =$30,189.50.If they married, they would have a marriage penalty of $72($30,189.50,-$30,117.50).LO1.4REFERENCE TABLESREQUIREDDIFFICULTY: Hard6. Darden Corporation has taxable income of $200,000. If it distributes 25 percent of its after-tax incometo its sole shareholder who is in the 25 percent marginal tax bracket, what is the total tax burden onthis$200,000 of income?ANSWER$66,453 total tax is 33.23% of $200,000Tax on $200,000 =($50,000 x .15) + $25,000 x .25) + $25,000 x .34)+ ($100,000 x .39) = $61,250corporate tax. ($200,000-$61,250) x .25 = $34,687.50 distributed to the shareholder. Individual tax =$34,687.50 x .15 dividend rate = $5,203.13. Total tax = $61,250 + $5,203 = $66,453. The $66,453 totaltax is 33.23% of $200,000.LO1.4 & 1.5REFERENCE TABLES REQUIREDDIFFICULTY: Hard7. Harold is a 40 percent partner in HDTPartnership. At the beginning of the year, his partnershipinterest basis was $20,000. The partnership had net income of $58,000 for the year and it made an$8,000 distribution to Harold. What is Harold’s basis at the end of the year?ANSWER$35,200$20,000 +(.40x$58,000)–$8,000 = $35,200 basisLO1.5REFERENCE TABLES REQUIREDDIFFICULTY: Easy8. Karen, single with$10,350 in deductions, wants to set up a business. She will use either a soleproprietorship or incorporate as a regular corporation. She expects the business to earn $45,000 afterall expenses and payments to Karen except for federal taxes. Karen will take $25,000 from thebusiness for living expenses (as a distribution from a sole proprietorship or a salary from acorporation). Considering only income taxesfor 2016, should she establish the business as a Ccorporation or as a sole proprietorship?ANSWERKaren should incorporate.As a C corporation: Income tax on corporation = $45,000 x .15 = $6,750. Tax on $25,000 salary:taxableincome = $25,000-$10,350deduction= $14,650; income tax = ($9,275 x .10) + ($5,375 x .15) =$927.50 + $806.25; total tax = $6,750 + $1,733.75 = $8,483.75.As a sole proprietorship, Karen would betaxed on $70,000 of income ($45,000 +$25,000salary).Taxable income = $70,000–$10,350=$59,650; income tax = ($9,275 x .10) + ($28,375 x .15) + ($22,000 x .25) = $10,683.75.Based onincome taxes alone, Karen should incorporate as she will pay $2,200($10,683.75-$8,483.75) less intaxes.LO1.4 & 1.5REFERENCE TABLES REQUIRED

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Chapter 1: Introduction to Taxation7DIFFICULTY: HardReference table(s) required for solution(Income tax tables).9. Sylvester,single,has $10,350 in deductions when filing his income tax.His sole proprietorshipaverages net income of $125,000annually. He needs $50,000 per year to live on. If he incorporateshis business, would he pay more or less in total income taxes if he takes a salary of $50,000 for hisliving expenses?(Consider only income taxes.)ANSWERIf he incorporates, Sylvester will save $5,718.50 in taxes.As a sole proprietorship: Taxable income: $125,000-$10,350in deductions= $114,650.Income tax:[($114,650-$91,150)x .28]+ $18,558.75= $25,138.75.As a corporation: Corporate taxable income: $125,000-$50,000salary= $75,000.Income tax: ($50,000x .15) + ($25,000 x .25) = $13,750.Sylvester’s taxable income: $50,000-$10,350 = $39,650.Income tax:[($39,650-$37,650)x .25)]+ $5,183.75= $5,683.75.Total tax: $5,683.75 + $13,750 =$19,433.75.If he incorporates, Sylvester will save $5,705($25,138.75-$19,433.75) in taxes.LO1.4 & 1.5REFERENCE TABLES REQUIREDOtherObjective QuestionsIdentify the following with anEifall or part of the itemcould bean exclusion from gross income orDifall or part of the item could bea deduction._____a.Scholarship_____f.State incometaxes_____b. Medicalexpense_____g.Tax exempt interest_____c. Charitable contribution_____h.Student loan interest_____d.Life insurance proceeds_____i.Social Securitybenefits_____e.Inheritances_____j.Thevalue of food stampsANSWER.a.Eb.Dc.Dd.Ee.Ef.Dg.Eh.Di.Ej.ELO1.4DIFFICULTY: ModerateMultiple Choice:Select the best answer for each of the following questions.1. What is a tax?a. a voluntary payment to the government for services receivedb. a penaltyc. afined. a forced payment to the governmentANSWER: dLO 1.1DIFFICULTY: Easy

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8Taxation for Decision Makers Test Bank2. Which of the following is a tax?a. Dog licenseb. Parking finec. Water usage feed. Import dutyANSWER: dLO1.1DIFFICULTY: Easy3. Which of the following types of taxes is not levied by the U.S. government?a. Sales taxb. Income taxc. Gift taxd. Estate taxANSWER: aLO1.1DIFFICULTY: Easy4. Which of the following types of taxes is a consumption tax?a. Estatetaxb. Income taxc. Gifttaxd. Use taxANSWER:dLO1.1DIFFICULTY: Easy5. William lives in Delaware but works for a company that has offices in both Maryland andPennsylvania. William spent four months working in Pennsylvania and 8 months working inMaryland.a. Only Delaware can impose a state income tax on his income.b. Only Maryland can impose a state income tax on his income as he worked there the longertime period.c. Only Pennsylvania and Maryland can impose state income taxes on his income.d. Delaware, Pennsylvania, and Maryland can impose state income taxes on his income.ANSWER:dLO:1.1DIFFICULTY: Moderate6. Which of the following is a type of wealth tax?a. A tax on a person’s salaryb. A tax on stocks owned by the taxpayerc. A tax onpurchases made at a department stored. A tax on property given to a grandchild

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Chapter 1: Introduction to Taxation9ANSWER: bLO1.1DIFFICULTY: Moderate7. Which type of tax is a real property tax?a. Income taxb. Consumption taxc. Wealth taxd. Use taxANSWER: cLO1.1DIFFICULTY: Easy8. Whenappreciatedproperty is transferred, the gift tax is based ona. replacementcost of the propertyb. fair market value of the propertyon the date of the giftc. the donor’s original cost of the propertyd. the donor’soriginal cost increased by half of the appreciationANSWER:bLO1.1DIFFICULTY: Moderate9. Which of the following types of taxes is levied by almost all states on some or all goods purchased?a. Sales taxb. Income taxc. Property taxd. Wealth transfer taxANSWER: aLO1.1DIFFICULTY: Easy10. Which of the following statements is false?a. Use taxes are assessed on out-of-state purchases used in the purchaser’s state.b. The estate tax is based on the fair market value of property transferred at the owner’s death.c. Tariffs are taxes levied on good and materials brought into a country.d. Gift taxes are imposed on the recipient of the gift.ANSWER: dLO1.1DIFFICULTY: Moderate11. Which of the following types of taxes is not levied bythe U.S. government?a. Excise taxb. Income taxc. Value added taxd. Gift taxANSWER: c

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10Taxation for Decision Makers Test BankLO1.1DIFFICULTY: Easy12. Kate received $130,000 in salary in 2016. What is her FICA tax if the Medicare rate is 1.45%, theSocial Security rate is6.2% on a maximum of $118,500 in 2016?a. $7,347b. $9,065c. $9,232d. $9,945ANSWER: c($130,000 x 1.45%) + ($118,500 x 6.2%) = $9,232LO 1.1DIFFICULTY: Moderate13. Alexander received $80,000 in salary in 2016. What is his FICA tax if the Medicare rate is 1.45%, theSocial Security rate is 6.2% on the 2016 maximum of $118,500, and the FUTA rate is 6% on a $7,000maximum?a. $4,960b. $6,120c. $6,540d. $10,920ANSWER: b$80,000 x (1.45% + 6.2%) = $6,120. FUTA is a separate tax.LO 1.1DIFFICULTY:Moderate14. Ethan received $120,000 in salary in 2016. What is his FICA tax if the Medicare rate is 1.45%, theSocial Security rate is 6.2% on the 2016 maximum of $118,500, and the FUTA rate is 6% on a $7,000maximum?a. $9,065b. $9,087c. $9,485d. $9,507ANSWER: b($120,000 x 1.45%) + ($118,500 x 6.2%) = $9,087. FUTA is a separate tax.LO 1.1DIFFICULTY:Moderate15. By what right does the U.S. levy an income tax on individuals?a. The 13thAmendment to the Constitutionb. Public Law 1913c. The 16thAmendment to the Constitutiond. An Act of Congress ratified by the statesANSWER: cLO 1.1DIFFICULTY: Easy

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Chapter 1: Introduction to Taxation1116. Current changes to the federal tax law are amendments to which of the following?a. The Internal Revenue Code of1913b. The Internal Revenue Code of 1954c. The Internal Revenue Code of 1986d. The Internal Revenue Code of 2014ANSWER: cLO 1.1DIFFICULTY: Easy17. Which of the following is an objective of taxation?a. Raise revenueb. Foster social goalsc. Stimulate the economyd. All of the abovee. None of the aboveANSWER: dLO 1.1DIFFICULTY: Easy18. William is single and had salary income from his position as Chief Financial Officer of Zippy Bankof $450,000 (the 39.6 taxbracket). He also had $35,000 in income from the dividends on the stock ofhis previous employer. What tax rate will apply to William’s dividend income?a. 15%b. 20%c. 35%d. 39.6%ANSWER:bLO: 1.2DIFFICULTY: Moderate19. John earns $25,000 and pays $2,000 in taxes. Marcy earns $60,000 and pays $4,000 in taxes. Howwould you characterize this tax system?a. A flat tax systemb. A proportional systemc. A regressive systemd. A progressive systemANSWER: c$2,000/$25,000 = .08; $4,000/$60,000 = .0667LO1.2DIFFICULTY: Moderate20. The Mercury Corporation must decide whether to invest in some new machinery for its business.Which tax rate is the most relevant for making this decision?a. The average tax rateb. The marginal taxratec. The nominal tax rated. The effective tax rate

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12Taxation for Decision Makers Test BankANSWER: bLO1.2DIFFICULTY: Moderate21.Which of the following statements describes the correct relationship between marginal and averagetax rates in a progressive tax system?a. Themarginal tax rate is higher than the average tax rate.b. The average tax rate is higher than the marginal tax rate.c. The marginal and average tax rates are the same.d. The average tax rate will always be half of the marginal tax rate.ANSWER: aLO1.2DIFFICULTY: Easy22. Which of the following nominal rates does not apply to a C corporation?a. 10%b. 15%c. 25%d. 35%ANSWER: aLO 1.2REFERENCE TABLES REQUIREDDIFFICULTY: Easy23. What is the marginal tax rate for acorporation with $110,000 of taxable income?a. 15%b. 25%c. 34%d. 39%ANSWER: dLO 1.2REFERENCE TABLES REQUIREDDIFFICULTY: Easy24. Which of the following best describes horizontal equity?a. All taxpayers should pay some taxes on their incomesb. As income increases, taxes should increasec. Persons with equal incomes should pay the same amount of taxesd. A person with capital gains should pay less tax than a person with the same amount of salaryincomeANSWER: cLO 1.3DIFFICULTY: Moderate25. Which of the following best describes vertical equity?a. All taxpayers should pay some taxes on their incomesb. As income increases, taxes should increasec. Persons with equal incomes should pay the same amount of taxes

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Chapter 1: Introduction to Taxation13d. A person with capital gains should pay less tax than a person with the same amount of salaryincomeANSWER: bLO 1.3DIFFICULTY: Moderate26. Which of the following are included in Adam Smith’s characteristics of a good tax?a. Certaintyb. Economyc.Convenienced. All are includede. None are includedANSWER: dLO 1.3DIFFICULTY: Easy27.Two married persons with moderately high incomes will pay more taxes than two single personswiththe same income. This is commonly called:a. vertical equity.b. horizontal equity.c. a marriage bonus.d. a marriage penalty.ANSWER: dLO1.3DIFFICULTY: Easy28.Daniel is a single with taxable income of $40,000. What is his marginal tax rate?a. 10%b. 15%c. 25%d. 28%ANSWER: cLO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy29.Charlotte is a head of household with taxable income of $40,000. What is her marginal tax rate?a. 10%b. 15%c. 25%d. 28%ANSWER:bLO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy30.Ethan and Mia are married and file a joint tax return. Their taxable income is $200,000. What is theirmarginal tax rate?a. 35%

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14Taxation for Decision Makers Test Bankb. 33%c. 28%d. 25%ANSWER: cLO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy31. What is an individual’s maximum annualdeduction for capital losses?a. $3,000b. An amount equal to capital gains onlyc. An amount equal to capital gains plus $3,000d. Individuals cannot deduct capital lossesANSWER: cLO 1.4DIFFICULTY: Easy32. What is a corporation’s annual deduction for capital losses?a. $3,000b. An amount equal to capital gains onlyc. An amount equal to capital gains plus $3,000d. Corporations cannot deduct capital lossesANSWER: bLO 1.4DIFFICULTY: Moderate33. Which of thefollowing is never included in computing gross income?a. Loss on stock saleb. Social security benefitsc. Unemployment benefitsd. GiftsANSWER: dLO 1.4DIFFICULTY: Easy34. Which of the following is normally not included in gross income?a. Cash dividendb. Corporate bond interest incomec. Stock dividendd. All are included in gross incomee. None are included in gross incomeANSWER: cLO 1.4DIFFICULTY: Moderate

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Chapter 1: Introduction to Taxation1535. What is George’s gross income if he has the following: $78,000 salary, $4,000 dividend income,$2,000 interest income on city of San Francisco bonds, a gain of $14,000 on a stock sale, and a $4,000operating loss on a small sole proprietorship that he owns?a. $78,000b. $84,000c. $92,000d. $96,000ANSWER: c[$78,000 + $4,000 + $14,000-$4,000 = $92,000]Interest on municipal bonds is tax exempt.LO 1.4DIFFICULTY: Moderate36.Abigail is married filing separately with taxable income of $200,000. What is her marginal tax rate?a. 35%b. 33%c.28%d. 25%ANSWER: bLO1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy37. How much income tax must the Benton Trust pay in 2016 if its taxable income (after all deductions)is $4,600?a. $460b. $690c. $900d. $1,240ANSWER: c[($2,550 x.15) + ($2,050 x .25)] = $895LO 1.4REFERENCE TABLES REQUIREDDIFFICULTY: Easy38. Which of these persons never pays taxes directly?a. Individualb. Partnershipc. C corporationd. FiduciaryANSWER: bLO1.5DIFFICULTY: Easy39. Which ofthese entities is taxed directly on its income?a. Limited Liability Companyb. C Corporationc. Partnershipd. Sole Proprietorship

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