Skip to content
Exam Guides

Taxation for Decision Makers Test Bank

Prepare for your test like a pro with Taxation for Decision Makers Test Bank, packed with high-quality practice questions and solutions.

Preview 16 of 318 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    Chapter 1: Introduction to Taxation 1 Chapter 1 Introduction to Taxation Note to Instructor: The r eference table s in the appendix of the text may be required for a limited number of answers to the questions and problems in this chapter. This is indicated by “ REFERENCE TABLES REQUIRED ” after the learning objective. True - False: Insert T for True and F for False before the questions. ______ 1. A hidden tax is one that is included with a payment but not specifically identified. ANSWER True LO 1.1 DIFFICULTY: Easy _____ 2 . Both sales and use taxes are collected in the state in which the sale takes place. ANSWER False LO 1. DIFFICULTY: Easy _____ 3 . The person giving the gift pays the gift tax. ANSWER True LO 1. 1 DIFFICULTY: Easy _____ 4 . The value added tax is a type of consumption tax. ANSWER True LO 1. 1 DIFFICULTY: Easy _____ 5. The type and degree of connection between a business and a state necessary for a state to impose a tax is referred to as nexus. ANSWER True LO 1.1 DIFFICULTY: Easy _____ 6. The 16 th Amendment to the US Constitution that provided for an income tax was ratified in 1913. ANSWER True LO 1.1 DIFFICULTY: Easy _____ 7. Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2016. ANSWER False LO 1.1 DIFFICULTY: Easy _____ 8 . A flat tax generally would be considered a regressive tax.

  2. Page 2
  3. Page 3
    Read page 3 as text

    2 Taxation for Decision Makers Test Bank ANSWER False LO 1. 2 DIFFICULTY: Easy _____ 9 . Adam Smith’s four canons of taxation are Equity, Certainty, Economy and Convenience. ANSWER True LO 1. 3 DIFFICULTY: Easy _____ 10 . Vertical equity asserts that persons in similar circumstances should face similar tax burdens. ANSWER False LO 1.3 DIFFICULTY: Easy _____ 11 . There are three basic taxable entities: the individual , the fiduciary, and the C corporation. ANSWER True LO 1. 4 DIFFICULTY: Easy _____ 12 . All i nterest paid to a taxpayer must be included in gross income. ANSWER False LO 1. 4 DIFFICULTY: Moderate _____ 1 3 . The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals and C corporations. ANSWER False LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy _____ 14 . A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit. ANSWER False LO 1.4 DIFFICULTY: Easy _____ 1 5 . C orporations are only allowed to carry their net operating losses forward. ANSWER False LO 5 . DIFFICULTY: Moderate _____ 1 6 . All limited liability companies (LLCs) can file their tax returns as partnerships, or electively, as corporations. ANSWER False LO 1. 5 DIFFICULTY: Moderate _____ 1 7 . Partnerships and S corporations are flow - through entities. ANSWER True LO 1. 5 DIFFICULTY: Easy

  4. Page 4
    Read page 4 as text

    Chapter 1: Introduction to Taxation 3 Short - Answer Questions: Provide a brief written answer to each of the following questions. 1. Name and describe two types of taxes other than the income tax. Give example of each. ANSWER Wealth 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 are the gift, estate, and inheritance taxes. Consumption taxes are taxes levied on the value of goods or services that are purchased for consumption. Examples include sales, use, excise, and value added taxes. LO 1. 1 DIFFICULTY: Easy 2 . Compare a sales tax to a use tax. ANSWER A sales tax is levied on a purchase at the point of sale regardless of the state of residence of the purchaser. A use tax is levied on a purchased item brought into a different state for use when a sales tax is not paid by the purchaser in the state where the item was purchased. Normally the sales and use taxes in a specific state are levied at identical rates. LO 1. 1 DIFFICULTY: 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 in time; common wealth tax would be real estate taxes that are levied on the owner of real property or intangible taxes on stocks. The wealth transfer tax is levied on the value of a person’s possessions that are transferred to another person; the gift and estate taxes are examples of wealth transfer taxes. LO 1.1 DIFFICULTY: Moderate 4 . Compare progressive, proportional, and regressive taxes. ANSWER The tax rate in a progressive system of taxation increases at a greater rate than the rate of increase in income. The higher the income, the greater the percentage of taxes paid. The tax rate in a proportional system of taxation increases at the same rate as the rate of increase in income. The percentage of taxes paid would be the same over all income levels. The tax rate in a regressive system of taxation increases at a slower rate than the rate of increase in income. The higher the income, the smaller the percentage of taxes paid. LO 1.2 DIFFICULTY: Moderate 5 . What are Adam Smith’s four canons of taxation? Briefly describe each. ANSWER Certainty — a taxpayer knows what the tax consequences of a transaction will be when the transaction is undertaken. Equity — t he tax is fair relative to the taxpayer’s level of income and circumstances. Economy — t he costs of administering and complying with the tax are small relative to the amount of taxes collected. Convenience — t he payment of taxes is simple and easy. LO 1. 3 DIFFICULTY: Easy

  5. Page 5
    Read page 5 as text

    4 Taxation for Decision Makers Test Bank 6 . Explain how horizontal equity differs from vertical equity. ANSWER Horizontal equity would require taxpayers with similar incomes to pay a like amount of taxes. Vertical equity would require taxpayers with greater (lesser) incomes to pay a greater (lesser) amount of taxes. L O 1. 3 DIFFICULTY: Easy 7. What tax provision encourages the fiduciary of and estate or a trust to distribute the income annually to the beneficiaries? ANSWER: The tax rates applicable to the income that a trust or an estate receives are far more pr ogressive than any other entity; they have not 10 or 35 percent tax rates and the highest tax rate (39.6%) begin s at $12,400 of taxable income. LO 1.4 DIFFICULTY: Easy 8 . Briefly compare a sole proprietorship to a corporation as a business entity. ANSWER A sole proprietorship has only one owner; a corporation can have one or an unlimited number of owners. The corporation has limited liability; the sole proprietor is responsible for the liabilities of the business. There generally are few if any legal requirements to establish a sole proprietorship; a corporation must be incorporated under the laws of one of the states and have a corporate chapter. The sole proprietor cannot take advantage of employee status and reports all results of operations on his or her own tax return. A shareholder - employee of a corporation is eligible for fringe benefits and the corporation files a completely separate tax return from that of any owner. There are other differences as well, too numerous to mention. LO 1. 5 DIFFICULTY: M o derate 9 . Why are S corporations and partnerships called flow - through entities? ANSWER S corporations and partnerships are called flow - through entities because they do not pay taxes on their incomes and gains. Instead the revenue and expense items flow through to the entity’s owners and are included in and taxed along with the owners’ other income. LO 1. 5 DIFFICULTY: Easy 10 . What are the fiduciary entities and how are they created? ANSWER The two fiduciary entities are the trust and the estate. A trust is created by a grantor who places assets in trust for the benefit of another person. A trustee manages the trust assets. An estate is created anytime a person who owns or has an interest in assets subject to estate taxes dies. LO 1. 5 DIFFICULTY: Easy

  6. Page 6
    Read page 6 as text

    Chapter 1: Introduction to Taxation 5 Problems: Provide numerical solut ions 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. In addition, Shoe Market received $5,000 of corporate bond interest and $6,000 interest on State of California bonds. It paid $512,000 in salaries and had $5 5 2,000 of other operating expenses. What is Shoe Market’s taxable income? What is its income tax liability? ANSWER $128,000 taxable income; $33,170 tax Taxable 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 . LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Moderate 2 . Walter is married and files a joint return. If his adjusted gross income is $64,000 and he has $ 32,850 of deductions in 201 6 , what is his taxable income? What is his income tax liability? ANSWER $31 ,150; taxable income; $3,7 45 tax Taxable income = $64,000 – ( $32,850 in deductions) = $31, 150 . Income tax = [($31, 15 0 - $18, 5 50) x .15] + $1,8 5 5 = $3,7 4 5 . LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Moderate 3 . Susie is single, has salary income of $26,000, and $ 10,350 of deductions in 201 6 . What is her taxable income? What is her income tax liability? ANSWER $15, 65 0 taxable income; $1,8 8 3.75 ta x Taxable income = $26,000 - 10 , 35 0 deduction = $15, 65 0 ; Income tax = ($9, 2 7 5 x .10) + [($15, 65 0 - $9, 2 7 5) x .15] = $9 2 7 .50 + $9 56 .25 = $1, 8 8 3 .75 LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Moderate 4 . Cragen Corporation has gross income of $625,000 and operating expenses of $418,000. What is its taxable income? What is its income tax liability? ANSWER $207,000 taxable income; $63,980 tax Taxable 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) = $63,980 LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 5 . Chloe and Bill , both single with no dependents, plan to marry either immediately before or immediately after year - end. Chloe’s taxable income for 20 1 6 is $ 8 9 ,000 and Bill’s is $ 8 6 ,000 before the $10,350 total for each of their deductions. Would they have a marriage penalty or a marriage benefit if they married at the end of 20 1 6 ? ANSWER Marriage penalty .

  7. Page 7
    Read page 7 as text

    6 Taxation for Decision Makers Test Bank As single taxpayers: Chloe’s taxable income: $89,000 - $ 10 , 3 5 0 standard deduction = $78, 65 0. Bill’s taxable income: $86,000 - $ 10, 3 5 0 deduction = $75, 65 0. Chloe’s income tax: ($9, 2 7 5 x .10) + ($2 8 , 37 5 x .15) + ($ 27,65 0 x .25) = $15, 4 33 .75 . Bill’s income tax: ($9, 7 2 5 x .10) + ($2 8, 37 5 x .15) + (38, 2 50 x .25) = $14, 683 .75 . Tota l tax as single taxpayers: $15,4 68.75 + $14, 7 18.75 = $30, 1 87.50 As a married couple: Taxable income: $89,000 + $86,000 – (2 x $ 4,0 5 0) - $12, 6 00 standard deduction = $154, 3 00 . Their income tax: ($18, 5 50 x .10) + ($5 6 , 7 50 x .15) + ($7 6 , 6 0 0 x .25) + ($ 2 , 4 00 x .28) = $30, 189 . 50 . If they married, they would have a marriage penalty of $ 72 ($30, 1 8 9 .50, - $30, 117 . 5 0). LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Hard 6 . Darden Corporation has taxable income of $200,000. If it distributes 25 percent of its after - tax income to its sole shareholder who is in the 25 percent marginal tax bracket, what is the total tax burden on this $200,000 of income? ANSWER $66,453 total tax is 33.23% of $200,000 Tax on $200,000 = ( $ 50,000 x .15) + $25,000 x .25) + $25,000 x .34) + ($100,000 x .39) = $61,250 corporate 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 total tax is 33.23% of $200,000. LO 1. 4 & 1. 5 REFERENCE TABLES REQUIRED DIFFICULTY: Hard 7 . H arold is a 40 percent partner in HDT Partnership. At the beginning of the year, his partnership interest 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 + ( .40 x $58,000) – $8,000 = $35,200 basis LO 1. 5 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 8 . Karen, single with $10,350 in deductions , wants to set up a business. She will use either a sole proprietorship or incorporate as a regular corporation. She expects the business to earn $45,000 after all expenses and payments to Karen except for federal taxes. Karen will take $25,000 from the business for living expenses (as a distribution from a sole proprietorship or a salary from a corporation). Considering only income taxes for 201 6 , should she establish the business as a C corporation or as a sole proprietorship? ANSWER Karen should incorporate. As a C corporation: Income tax on corporation = $45,000 x .15 = $6,750. Tax on $25,000 salary: taxable income = $25,000 - $ 10,350 deduction = $14, 65 0; income tax = ($9, 2 7 5 x .10) + ($5, 37 5 x .15) = $9 2 7 .50 + $ 8 06 .25 ; total tax = $6,750 + $1,7 3 3.75 = $8, 4 8 3.75. As a sole proprietorship, Karen would be taxed on $70,000 of income ($45,000 + $25,000 salary ). Taxable income = $70,000 – $ 10 , 3 5 0 = $59, 65 0; income tax = ($9, 2 7 5 x .10) + ($2 8 , 37 5 x .15) + ($22, 00 0 x .25) = $10, 6 8 3 .75. Based on income taxes alone, Karen should incorporate as she will pay $2,2 00 ($10, 6 8 3 .75 - $8, 4 8 3.75) less in taxes. LO 1. 4 & 1.5 REFERENCE TABLES REQUIRED

  8. Page 8
    Read page 8 as text

    Chapter 1: Introduction to Taxation 7 DIFFICULTY: Hard Reference table(s) required for solution (Income tax tables). 9 . Sylvester , single , has $10,350 in deductions when filing his income tax. His sole proprietorship averages net income of $125,000 annually . He needs $50,000 per year to live on. If he incorporates his business, would he pay more or less in total income taxes if he takes a salary of $50,000 for his living expenses ? (Consider only income taxes.) ANSWER If he incorporates, Sylvester will save $5,718.50 in taxes. As a sole proprietorship: Taxable income: $125,000 - $ 10 , 350 in deductions = $114, 65 0 . Income tax: [ ($ 114 , 6 5 0 - $91,150) x .28 ] + $18,558.75 = $25, 1 38.75 . As a corporation: Corporate taxable income: $125,000 - $50,000 salary = $75,000 . Income tax: ($50,000 x .15) + ($25,000 x .25) = $13,750 . Sylvester’s taxable income: $50,000 - $ 10 , 3 5 0 = $39, 65 0 . Income tax: [ ($ 39 , 65 0 - $37,650) x .25) ] + $5,183.75 = $5, 6 8 3 .75 . Total tax: $5, 6 8 3 .75 + $13,750 = $1 9 , 4 33 .75. If he incorporates, Sylvester will save $5,7 0 5 ($25, 1 38 . 7 5 - $19, 4 33 .75) in taxes. LO 1. 4 & 1.5 REFERENCE TABLES REQUIRED Other Objective Questions Identify the following with an E if all or part of the item could be a n exclusion from gross income or D if all or part of the item could be a deduction . _____ a. Scholarship _____ f. State income taxes _____ b. Medical expense _____ g. Tax exempt interest _____ c. Charitable contribution _____ h. Student loan interest _____ d. Life insurance proceeds _____ i. Social Security benefits _____ e. Inheritances _____ j. The value of food stamps ANSWER. a. E b. D c. D d. E e. E f. D g. E h. D i. E j. E LO 1. 4 DIFFICULTY: Moderate Multiple 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 received b. a penalty c. a fine d. a forced payment to the government ANSWER: d LO 1.1 DIFFICULTY: Easy

  9. Page 9
    Read page 9 as text

    8 Taxation for Decision Makers Test Bank 2 . Which of the following is a tax? a. Dog license b. Parking fine c. Water usage fee d. Import duty ANSWER: d LO 1. 1 DIFFICULTY: Easy 3 . Which of the following types of taxes is not levied by the U.S. government? a. Sales tax b. Income tax c. Gift tax d. Estate tax ANSWER: a LO 1. 1 DIFFICULTY: Easy 4 . Which of the following types of taxes is a consumption tax? a. Estate tax b. Income tax c. Gift tax d. Use tax ANSWER: d LO 1. 1 DIFFICULTY: Easy 5 . William lives in Delaware but works for a company that has offices in both Maryland and Pennsylvania. William spent four months working in Pennsylvania and 8 months working in Maryland. 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 longer time 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: d LO: 1.1 DIFFICULTY: Moderate 6 . Which of the following is a type of wealth tax? a. A tax on a person’s salary b. A tax on stocks owned by the taxpayer c. A tax on purchases made at a department store d. A tax on property given to a grandchild

  10. Page 10
    Read page 10 as text

    Chapter 1: Introduction to Taxation 9 ANSWER: b LO 1. 1 DIFFICULTY: Moderate 7 . Which type of tax is a real property tax? a. Income tax b. Consumption tax c. Wealth tax d. Use tax ANSWER: c LO 1. 1 DIFFICULTY: Easy 8 . When appreciated property is transferred, the gift tax is based on a. replace ment cost of the property b. fair market value of the property on the date of the gift c. the donor’s original cost of the property d. the donor’s original cost increased by half of the appreciation ANSWER: b LO 1. 1 DIFFICULTY: Moderate 9 . Which of the following types of taxes is levied by almost all states on some or all goods purchased? a. Sales tax b. Income tax c. Property tax d. Wealth transfer tax ANSWER: a LO 1. 1 DIFFICULTY: Easy 10 . 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: d LO 1. 1 DIFFICULTY: Moderate 1 1 . Which of the following types of taxes is not levied by the U.S. government? a. Excise tax b. Income tax c. Value added tax d. Gift tax ANSWER: c

  11. Page 11
    Read page 11 as text

    10 Taxation for Decision Makers Test Bank LO 1. 1 DIFFICULTY: Easy 1 2 . Kate received $130,000 in salary in 2016. What is her FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on a maximum of $118,500 in 2016? a. $7,347 b. $9,065 c. $9,232 d. $9,945 ANSWER: c ($130,000 x 1.45%) + ($118,500 x 6.2%) = $9,232 LO 1.1 DIFFICULTY: Moderate 13 . Alexander received $80,000 in salary in 2016. What is his FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on the 2016 maximum of $118,500, and the FUTA rate is 6% on a $7,000 maximum? a. $4,960 b. $6,120 c. $6,540 d. $10,920 ANSWER: b $80,000 x (1.45% + 6.2%) = $6,120 . FUTA is a separate tax. LO 1.1 DIFFICULTY: Moderate 14 . Ethan received $120,000 in salary in 2016. What is his FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on the 2016 maximum of $118,500, and the FUTA rate is 6% on a $7,000 maximum? a. $9,065 b. $9,087 c. $9,485 d. $9,507 ANSWER: b ($120,000 x 1.45%) + ($118,500 x 6.2%) = $9,087 . FUTA is a separate tax. LO 1.1 DIFFICULTY: Moderate 1 5. By what right does the U.S. levy an income tax on individuals? a. The 13 th Amendment to the Constitution b. Public Law 1913 c. The 16 th Amendment to the Constitution d. An Act of Congress ratified by the states ANSWER: c LO 1.1 DIFFICULTY: Easy

  12. Page 12
    Read page 12 as text

    Chapter 1: Introduction to Taxation 11 1 6. Current changes to the federal tax law are amendments to which of the following? a. The Internal Revenue Code of 1913 b. The Internal Revenue Code of 1954 c. The Internal Revenue Code of 1986 d. The Internal Revenue Code of 2014 ANSWER: c LO 1.1 DIFFICULTY: Easy 1 7. Which of the following is an objective of taxation? a. Raise revenue b. Foster social goals c. Stimulate the economy d. All of the above e. None of the above ANSWER: d LO 1.1 DIFFICULTY: Easy 1 8 . William is single and had salary income from his position as Chief Financial Officer of Zippy Bank of $450,000 (the 39.6 tax bracket). He also had $35,000 in income from the dividends on the stock of his previous employer. What tax rate will apply to William’s dividend income? a. 15% b. 20% c. 35% d. 39.6% ANSWER: b LO: 1.2 DIFFICULTY: Moderate 1 9 . John earns $25,000 and pays $2,000 in taxes. Marcy earns $60,000 and pays $4,000 in taxes. How would you characterize this tax system? a. A flat tax system b. A proportional system c. A regressive system d. A progressive system ANSWER: c $2,000/$25,000 = .08; $4,000/$60,000 = .0667 LO 1. 2 DIFFICULTY: Moderate 20 . 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 rate b. The marginal tax rate c. The nominal tax rate d. The effective tax rate

  13. Page 13
    Read page 13 as text

    12 Taxation for Decision Makers Test Bank ANSWER: b LO 1. 2 DIFFICULTY: Moderate 21 . Which of the following statements describes the correct relationship between marginal and average tax rates in a progressive tax system? a. The marginal 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: a LO 1. 2 DIFFICULTY: Easy 2 2 . Which of the following nominal rates does not apply to a C corporation? a. 10% b. 15% c. 25% d. 35% ANSWER: a LO 1.2 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 23 . What is the marginal tax rate for a corporation with $110,000 of taxable income? a. 15% b. 25% c. 34% d. 39% ANSWER: d LO 1.2 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 2 4 . Which of the following best describes horizontal equity? a. All taxpayers should pay some taxes on their incomes b. As income increases, taxes should increase c. Persons with equal incomes should pay the same amount of taxes d. A person with capital gains should pay less tax than a person with the same amount of salary income ANSWER: c LO 1.3 DIFFICULTY: Moderate 2 5 . Which of the following best describes vertical equity? a. All taxpayers should pay some taxes on their incomes b. As income increases, taxes should increase c. Persons with equal incomes should pay the same amount of taxes

  14. Page 14
    Read page 14 as text

    Chapter 1: Introduction to Taxation 13 d. A person with capital gains should pay less tax than a person with the same amount of salary income ANSWER: b LO 1.3 DIFFICULTY: Moderate 2 6 . Which of the following are included in Adam Smith’s characteristics of a good tax? a. Certainty b. Economy c. Convenience d. All are included e. None are included ANSWER: d LO 1.3 DIFFICULTY: Easy 27 . Two married persons with moderately high incomes will pay more taxes than two single person s with the same income. This is commonly called: a. vertical equity. b. horizontal equity. c. a marriage bonus. d. a marriage penalty. ANSWER: d LO 1. 3 DIFFICULTY: Easy 28 . 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: c LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 29 . 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: b LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 30 . Ethan and Mia are married and file a joint tax return. Their taxable income is $200,000. What is their marginal tax rate? a. 35%

  15. Page 15
    Read page 15 as text

    14 Taxation for Decision Makers Test Bank b. 33% c. 28% d. 25% ANSWER: c LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 31. What is an individual’s maximum annual deduction for capital losses? a. $3,000 b. An amount equal to capital gains only c. An amount equal to capital gains plus $3,000 d. Individuals cannot deduct capital losses ANSWER: c LO 1.4 DIFFICULTY: Easy 32. What is a corporation’s annual deduction for capital losses? a. $3,000 b. An amount equal to capital gains only c. An amount equal to capital gains plus $3,000 d. Corporations cannot deduct capital losses ANSWER: b LO 1.4 DIFFICULTY: Moderate 33. Which of the following is never included in computing gross income? a. Loss on stock sale b. Social security benefits c. Unemployment benefits d. Gifts ANSWER: d LO 1.4 DIFFICULTY: Easy 3 4 . Which of the following is normally not included in gross income? a. Cash dividend b. Corporate bond interest income c. Stock dividend d. All are included in gross income e. None are included in gross income ANSWER: c LO 1.4 DIFFICULTY: Moderate

  16. Page 16
    Read page 16 as text

    Chapter 1: Introduction to Taxation 15 3 5 . 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 $4,000 operating loss on a small sole proprietorship that he owns ? a. $78,000 b. $84,000 c. $92,000 d. $96,000 ANSWER: c [$78,000 + $4,000 + $14,000 - $4,000 = $92,000] Interest on municipal bonds is tax exempt. LO 1.4 DIFFICULTY: Moderate 36 . 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: b LO 1. 4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 37 . How much income tax must the Benton Trust pay in 2016 if its taxable income (after all deductions) is $4,600? a. $460 b. $690 c. $900 d. $1,240 ANSWER: c [($2,550 x .15) + ($2,050 x .25)] = $895 LO 1.4 REFERENCE TABLES REQUIRED DIFFICULTY: Easy 3 8 . Which of these persons never pays taxes directly? a. Individual b. Partnership c. C corporation d. Fiduciary ANSWER: b LO 1. 5 DIFFICULTY: Easy 3 9 . Which of these entities is taxed directly on its income? a. Limited Liability Company b. C Corporation c. Partnership d. Sole Proprietorship

302 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Taxation study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.