Exam 1: Introduction to Taxation

The Shoe Market Inc. (a regular corporation) 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 income and $6,000 interest income on State of California bonds. It paid $512,000 for salaries and had $552,000 of other operating expenses. What is Shoe Market's taxable income? What is its income tax liability for 2018?

By what right does the U.S. levy an income tax on individuals?

The 13^th Amendment to the US Constitution that provided for an income tax was ratified in 1916.

Adam Smith's four canons of taxation are Equity, Certainty, Economy and Convenience.

Which of the following is an objective of taxation?

Alexander received $80,000 in salary in 2018. What is his FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on the 2018 maximum of $128,400, and the FUTA rate is 6% on a $7,000 maximum?

Charlotte is a head of household with taxable income of $40,000 in 2018. What is her marginal tax rate?

Which of the following best describes vertical equity?

What tax provision encourages the fiduciary of an estate or a trust to distribute the income annually to the beneficiaries?

The value added tax is a type of consumption tax.

A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.

Which of the following is not a tax credit allowed a corporation?

Terri owns a 50 percent interest in the TT Partnership. At the beginning of the year, her basis in her partnership interest was $75,000. The partnership reports a $40,000 loss for the year and distributes $4,000 cash to Terri. What is her basis in her partnership interest at the end of the year?

Ted owns 20% of Genco (a C corporation) that had taxable income of $100,000 and paid a total of $50,000 in dividends to its shareholders. Ted also owns 10% of Subco (an S corporation) that had $100,000 of taxable income and distributed a total of $60,000 to its shareholders. How much must Ted include in his gross income as a result of being a shareholder in these two corporations?

Current changes to the federal tax law are amendments to which of the following?

Harold 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?

Karen, single with the standard deduction being the only deduction for her individual tax return, 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 $160,000 after all expenses and payments to Karen except for federal taxes. Karen will take $40,000 from the business for living expenses (as a distribution from a sole proprietorship or a salary from a corporation). Considering only income taxes for 2018, should she establish the business as a C corporation or as a sole proprietorship?

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year. At year-end, the partnership reported net income of $15,000 and distributed $2,000 cash to Jason. What is Jason's year-end basis?

Which of the following is a tax?

Emily is a 20% shareholder in an S corporation. Emily acquired her interest on January 1 of the current year by investing $10,000 for 20% of the corporation's stock. In March, the corporation took out a bank loan for $100,000. The corporation reported a net loss for the current year of $200,000. How much of this loss can Emily deduct on her current year's tax return?