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

49 Test Bank for Taxation of Individuals and Business
Entities 2012 3rd
Edition by Spilker
Multiple Choice Questions
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

If Susie earns $750,000 in taxable income, how much tax will she
pay as a single taxpayer for year 2010?
1.

A. $236,817.50

2.

B. $262,500.00

3.

C. $240,143.75

4.

D. $287,550.00

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

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

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

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)?


1.

A. 23.08%

2.

B. 17.20%

3.

C. 13.20%

4.

D. 19.13%

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.

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 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

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

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

If Leonardo instead had $30,000 of additional tax deductions for
year 2010, his marginal tax rate (rounded) on the deductions
would be:
1.

A. 28.00%

2.

B. 25.00%

3.

C. 36.46%

4.

D. 27.96%

5.

E. None of the above

Which of the following would not be a failure of the horizontal
equity concept?
1.

A. Two taxpayers with identical income pay different amounts of tax
because one taxpayer's income includes tax exempt interest.


2.

B. Two taxpayers pay different amounts of property tax amounts on similar
plots of land (i.e., same value) because one plot of land is used to raise
crops.

3.

C. Two taxpayers pay different amounts of estate tax because one
taxpayer's estate is worth significantly more.

4.

D. All of the above.

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

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

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

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?
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.

5.

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

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

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

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

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

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

If Manny earns an additional $35,000 in taxable income in year
2010, what is his marginal tax rate (rounded) on this income?
1.

A. 18.95%

2.

B. 28.00%

3.

C. 26.51%

4.

D. 25.00%

5.

E. None of the above

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


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

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

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

Which of the following represents the largest percentage of state
tax revenue?
1.

A. Sales tax

2.

B. Individual income tax


3.

C. Other

4.

D. Property tax

5.

E. None of the above

The substitution effect:
1.

2.
3.

A. Predicts that taxpayers will work harder to pay for consumer products
when tax rates increase
B. Is one of the effects considered in static forecasting
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

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)?
1.

A. 31.58%

2.

B. 32.57%

3.

C. 35.00%

4.

D. 31.13%

5.

E. 28.00%

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


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
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

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

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.
5.

D. A tax because it is imposed by a government agency
E. Not a tax because Margaret could have avoided payment if she did not
speed

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

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

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.

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

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 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

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 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

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

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

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

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.

5.

D. Real property taxes are generally easier to administer than personal
property taxes
E. None of the above is true



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