98 test bank for taxation of individuals and business entities 2012 3rd

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98 Test Bank for Taxation of Individuals and Business Entities 2012 3rd

True False Questions Free Text Questions

-Multiple Choice Questions

If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2010?

1 A 28.90%

2 B 27.82%

3 C 33.00%

4 D 38.00%

5 E None of the above

If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2010?

How much money would Leonardo and Theresa save if they filed jointly instead of separately for year 2010?

1 A Nothing

2 B $340.50

3 C $423.50

4 D $682.50

5 E None of the above

What is Leonardo and Theresa's effective tax rate for year 2010 (rounded)?

1 A 19.52%

2 B 28.00%

3 C 25.00%

4 D 16.72%

5 E None of the above

Which of the following is true regarding use taxes?

1 A A use tax is relatively easy to enforce compared to a sales tax.

2 B Use taxes attempt to eliminate any tax advantage of purchasing goods out of state.

3 C Use taxes encourage taxpayers to buy goods out of state to avoid paying sales tax

in their home state.

4 D A use tax is generally a progressive tax.

5 E None of the above is true.

If Susie earns $750,000 in taxable income and files as head of household for year 2010, what is Susie's average tax rate (rounded)?

5 E None of the above

The concept of tax sufficiency:

1 A Suggests the need for tax forecasting

2 B Suggests that a government should estimate how taxpayers will respond to changes

in the current tax structure

3 C Suggests that a government should consider the income and substitution effects when changing tax rates

4 D All of the above

5 E None of the above

The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school This surcharge is an example of

1 A A sin tax to discourage undesirable behavior

2 B A government fine

3 C An earmarked tax

4 D Both A and C

5 E None of the above

Taxes influence which of the following decisions?

1 A Business decisions

2 B Personal decisions

3 C Political decisions

4 D Investment decisions

5 E All of the above

Congress recently approved a new, bigger budget for the IRS What taxation concept evaluates the cost of administering our tax law?

1 A Convenience

2 B Economy

3 C Certainty

4 D Equity

5 E None of the above

If Curtis invested in the Initech, Inc bonds, what would be his after-tax rate of return from this investment?

1 A 5.04%

2 B 7.00%

3 C 6.48%

4 D 2.52%

5 E None of the above

Which of the following taxes represents the largest portion of U.S Federal Tax revenues?

1 A Employment taxes

2 B Corporate income taxes

3 C Individual income taxes

4 D Estate and gift taxes

5 E None of the above

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

1 A Issue treasury bonds

2 B Cut funding to various federal projects

3 C Increase federal spending

4 D A and B but not C

5 E None of the above

Which of the following is considered a tax?

1 A Tolls

2 B Parking meter fees

3 C Annual licensing fees

4 D A local surcharge paid on retail sales to fund public schools

5 E Entrance fees paid at national parks

Sin taxes are:

1 A taxes assessed by religious organizations

2 B taxes assessed on certain illegal acts

3 C taxes assessed to discourage less desirable behavior

4 D taxes assessed to fund a specific purpose

5 E None of the above

If Manny earns an additional $35,000 in taxable income in year 2010, what is his marginal tax rate (rounded) on this income?

Eliminating the current system of withholding income taxes directly from employee paychecks would:

1 A Violate the convenience criterion of federal taxation

2 B Increase the rate of compliance

3 C Make collection of federal income taxes easier

4 D All of the above

5 E None of the above

Employers often withhold federal income taxes directly from worker's paychecks This is an example of which principle in practice?

1 A Convenience

2 B Certainty

3 C Economy

4 D Equity

5 E None of the above

The difficulty in calculating a tax is typically in the determination of:

1 A The correct tax rate

2 B Where to file the tax return

3 C The tax base

4 D The due date for the return

5 E None of the above

How much implicit tax would Curtis pay on the city of Athens bond?

1 A $17,500

2 B $1,400

3 C $1,300

4 D $5,000

5 E None of the above

Leonardo earns $80,000 of taxable income He also has $15,000 in city of Tulsa bonds His wife, Theresa, earns $50,000 of taxable income If Leonardo and his wife file married filing jointly in 2010, what would be their average tax rate (rounded)?

1 A 19.20%

2 B 28.00%

3 C 19.13%

4 D 22.76%

5 E None of the above

Which of the following is not an example of a graduated tax rate structure?

1 A Progressive tax rate structure

2 B Proportional tax rate structure

3 C U.S Federal Income Tax

4 D Regressive tax rate structure

5 E None of the above

Margaret was issued a $150 speeding ticket This is:

1 A A tax because payment is required by law

2 B A tax because the payment is not related to any specific benefit received from the government agency collecting the ticket

3 C Not a tax because it is considered a fine intended to punish illegal behavior

4 D A tax because it is imposed by a government agency

5 E Not a tax because Margaret could have avoided payment if she did not speed

Which of the following would not be a failure of the horizontal equity

4 D All of the above.

5 E None of the above.

Which of the following is true regarding tax-advantaged assets?

1 A They are typically subject to excise taxes to account for their low explicit taxes

2 B A corporate bond is typically considered a tax-advantaged asset

3 C They are often subject to implicit taxes

4 D B and C are correct but not A

5 E None of the above

Which of the following represents the largest percentage of state tax

5 E None of the above

Which of the following principles encourages a vertically equitable tax

system?

1 A Pay as you go

2 B Economy

3 C Income effects

4 D Ability to pay principle

5 E None of the above

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds Using the U.S tax rate schedule for year 2010, how much federal tax will he owe?

1 A $15,000.00

2 B $12,431.25

3 C $11,181.25

4 D $8,581.25

5 E None of the above

What is Manny's current marginal tax rate for year 2010?

1 A 33.00%

2 B 28.00%

3 C 18.50%

4 D 23.46%

5 E None of the above

Earmarked taxes are:

1 A taxes assessed only on certain taxpayers

2 B taxes assessed to fund a specific purpose

3 C taxes assessed for only a specific time period

4 D taxes assessed to discourage less desirable behavior

5 E None of the above

Which of the following is false?

1 A A proportional tax rate structure imposes a constant tax rate while a progressive tax rate structure imposes an increasing marginal rate related to the tax base

2 B The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system

3 C An example of a proportional tax is the tax on gasoline

4 D An example of a progressive tax is the federal tax on gifts

5 E None of the above

Geronimo files his tax return as a head of household for year 2010 If his taxable income is $72,000, what is his average tax rate (rounded)?

1 A 17.84%

2 B 14.17%

3 C 19.70%

4 D 25.00%

5 E None of the above

How much explicit tax would Curtis incur on interest earned on the Initech, Inc bond?

1 A $16,200

2 B $6,300

3 C $4,900

4 D $12,600

5 E None of the above

To calculate a tax, you need to know: I the tax base; II the taxing agency; III the tax rate; IV the purpose of the tax

1 A Only I is correct

2 B Only IV is correct

3 C Only III is correct

4 D Items I through IV are correct

5 E I and III are correct

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds Using the U.S tax rate schedule for year 2010, what is his current marginal tax rate?

1 A 15.00%

2 B 25.00%

3 C 33.00%

4 D 28.00%

5 E None of the above

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds Using the U.S tax rate schedule for year 2010, what is his average tax rate (rounded)?

1 A 18.64%

2 B 19.13%

3 C 14.30%

4 D 25.00%

5 E None of the above

What is Curtis's after-tax rate of return on the city of Athens bond?

1 A 1.96%

2 B 2.52%

3 C 7.00%

4 D 9.00%

5 E None of the above

What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc bonds for year 2010?

1 A 7.50%

2 B 10.00%

3 C 8.00%

4 D 7.20%

5 E None of the above

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds Using the U.S tax rate schedule for year 2010, what is his effective tax rate (rounded)?

Which of the following is true?

1 A A regressive tax rate structure imposes an increasing marginal tax rate as the tax base increases

2 B Regressive tax structures are the most common tax rate structure

3 C An example of a regressive tax is an excise tax

4 D In terms of effective tax rates, a sales tax can be viewed as a regressive tax

5 E None of the above

Assume the original facts as given except that Jackson is a head of

household taxpayer and the city of Mitchell pays interest of 7.8% How would you advise Jackson to invest his money?

1 A Invest in Sundial, Inc bonds because their explicit tax is greater than the implicit tax

on city of Mitchell bonds.

2 B Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc bonds.

3 C Invest in Sundial, Inc bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds.

4 D Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax

on Sundial, Inc bonds.

5 E None of the above.

Which of the following is not one of the basic tax rate structures?

1 A Proportional

2 B Equitable

3 C Regressive

4 D Progressive

5 E All of the above are different kinds of the basic tax rate structures

The state of Georgia recently increased its tax on a carton of cigarettes by

$2.00 What type of tax is this?

1 A A sin tax

2 B An excise tax

3 C It is not a tax; it is a fine

4 D Both A and B are correct

5 E None of the above is correct

Which of the following is true regarding real property taxes and personal property taxes?

1 A Personal property taxes are assessed on permanent structures and land

2 B Real property taxes are assessed on cars and boats

3 C All U.S states currently impose personal property taxes

4 D Real property taxes are generally easier to administer than personal property taxes

5 E None of the above is true

The ultimate economic burden of a tax is best captured by:

1 A The marginal tax rate

2 B The effective tax rate

3 C The average tax rate

4 D The proportional tax rate

5 E None of the above is correct

Which of the following statements is true?

1 A Municipal bond interest is subject to explicit federal tax

2 B Municipal bond interest is subject to implicit tax

3 C Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk

4 D All of the above are true

5 E None of the above is true

The substitution effect:

1 A Predicts that taxpayers will work harder to pay for consumer products when tax rates increase

2 B Is one of the effects considered in static forecasting

3 C Results in the government collecting more aggregate tax revenue that under the income effect

4 D Is typically more descriptive for taxpayers with lower disposable income

5 E None of the above

Which of the following is a tax? I A 1% special sales tax for funding local road construction; II A fee paid to the state for a license to practice as an attorney; III An income tax imposed by Philadelphia on persons working within the city limits; IV A special property assessment for installing a new water system in the taxpayer's neighborhood

1 A Only I is correct.

2 B Only IV is correct.

3 C Only III is correct.

4 D III and IV are correct.

5 E I and III are correct.

True - False Questions

Taxes influence business decisions such as where a business should locate

or how a business should be structured

The income and substitution effects are two opposing effects that one could consider in static forecasting

In addition to raising revenues, specific U.S taxes may have other objectives (e.g., economic or social objectives)

1 True

2 False

Dynamic forecasting does not take into consideration taxpayers' responses to

a tax change when estimating tax revenues

The main difficulty in calculating an income tax is determining the correct amount of the tax base

In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate

A flat tax is an example of a graduated tax system

Relative to explicit taxes, implicit taxes are much easier to estimate

1 True

2 False

Taxes influence many types of business decisions but generally do not

influence personal decisions

1 True

2 False

Horizontal equity is defined in terms of taxpayers in similar situations

whereas vertical equity is defined in terms of taxpayers in different situations

2 False

Free Text Questions

Although the primary purpose of a tax system is to raise revenue, Congress uses the federal tax system for other purposes as well Describe the other ways in which Congress uses the federal tax system Be specific.

Answer Given

In addition to the general objective of raising revenue, Congress uses the federal tax system to encourage certain behavior and discourage other behavior The charitable contribution deduction is intended to encourage taxpayers to support the initiatives of charitable organizations (social objective) whereas deductions for retirement

contributions are intended to encourage retirement savings (social objective) Taxes are also often used to encourage investment and stimulate the economy Likewise, taxes are also used to discourage certain less desirable taxpayer behavior For

example, "sin taxes" impose relatively high surcharges on alcohol and tobacco

products to discourage their use

Oswald is beginning his first tax course and does not really have a solid

understanding of the role that taxes play in various decisions Please describe for Oswald the various types of decisions that taxes may influence.

business locate?; • How should business acquisitions be structured?; • How should employees be compensated? What is the appropriate mix of debt and equity for the business?; • Should the business rent or own equipment and property?; • How should the business distribute profits to its owners? Savvy business decisions require

consideration of all costs and benefits in order to evaluate the merits of a transaction