Question 1

All interest paid to a taxpayer must be included in gross income.

Accepted Answer

A) True 
 B)False

Question 2

Elena owns 40% of Martinez, Inc., a regular C corporation, that reported net income of $80,000 for the year. During the year $8,000 was distributed to Elena from the corporation. How much income from the corporation should Elena include in her taxable income for the year?

Accepted Answer

A)  $40,000 
B)  $32,000 
C)  $8,000 
D)  $3,200 
A)  $40,000 
B)  $32,000 
C)  $8,000 
D)  $3,200

Question 3

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.

Accepted Answer

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. 
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.

Question 4

Which of the following federal income tax rates applies to a C corporation in 2018?

Accepted Answer

A)  15% 
B)  21% 
C)  25% 
D)  35% 
A)  15% 
B)  21% 
C)  25% 
D)  35%

Question 5

Ian contributes $9,000 in exchange for a 30 percent interest in a C corporation. For 2017, the corporation reported a total loss of $35,000 and made no cash distributions. For 2018, the corporation reported net income of $45,000 and made a cash distribution to the shareholders. Ian received $5,000 of this cash distribution in 2018. Ian is in the 24% marginal tax bracket and 15% dividend rate in both 2017 and 2018. How much income tax did Ian save for 2017 as a result of his share of loss from this corporation and how much income tax does Ian pay as a result of his ownership in the corporation for 2018?

Accepted Answer

A)  zero tax savings in 2017 and $750 tax in 2018 
B)  zero tax savings in 2017 and $3,360 tax in 2018 
C)  $2,520 tax savings in 2017 and $3,360 tax in 2018 
D)  $2,520 tax savings in 2017 and $2,550 tax in 2018 
E)  $2,940 tax savings in 2017 and $3,780 tax in 2018 
A)  zero tax savings in 2017 and $750 tax in 2018 
B)  zero tax savings in 2017 and $3,360 tax in 2018 
C)  $2,520 tax savings in 2017 and $3,360 tax in 2018 
D)  $2,520 tax savings in 2017 and $2,550 tax in 2018 
E)  $2,940 tax savings in 2017 and $3,780 tax in 2018

Question 6

A corporation incurring a net operating loss in 2018 can only carry that loss forward to offset profits in future years.

Accepted Answer

A) True 
 B)False

Question 7

Which of these entities is taxed directly on its income?

Accepted Answer

A)  Limited Liability Company 
B)  C Corporation 
C)  Partnership 
D)  Sole Proprietorship 
A)  Limited Liability Company 
B)  C Corporation 
C)  Partnership 
D)  Sole Proprietorship

Question 8

Which of the following best describes horizontal equity?

Accepted Answer

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 
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

Question 9

What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?

Accepted Answer

A)  $0 
B)  $1,386 
C)  $4,144 
D)  $4,389 
E)  $4,655 
A)  $0 
B)  $1,386 
C)  $4,144 
D)  $4,389 
E)  $4,655

Question 10

What is a corporation's annual deduction for capital losses?

Accepted Answer

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 
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

Question 11

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. What is Matt's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as an S corporation?

Accepted Answer

A)  $6,916 
B)  $5,320 
C)  $4,634 
D)  $1,872 
E)  $0 
A)  $6,916 
B)  $5,320 
C)  $4,634 
D)  $1,872 
E)  $0

Question 12

A flat tax generally would be considered a regressive tax.

Accepted Answer

A) True 
 B)False

Question 13

When appreciated property is transferred, the gift tax is based on

Accepted Answer

A)  replacement 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 
A)  replacement 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

Question 14

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. What is Matt's stock basis at the end of the second year if they organize the business as an S corporation?

Accepted Answer

A)  $0 
B)  $11,700 
C)  $28,600 
D)  $33,800 
E)  $44,850 
A)  $0 
B)  $11,700 
C)  $28,600 
D)  $33,800 
E)  $44,850

Question 15

Which of the following types of taxes is a consumption tax?

Accepted Answer

A)  Estate tax 
B)  Income tax 
C)  Gift tax 
D)  Use tax 
A)  Estate tax 
B)  Income tax 
C)  Gift tax 
D)  Use tax

Question 16

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?

Accepted Answer

A)  $78,000 
B)  $84,000 
C)  $92,000 
D)  $96,000 
A)  $78,000 
B)  $84,000 
C)  $92,000 
D)  $96,000

Question 17

Which of the following is normally not included in gross income?

Accepted Answer

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 
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

Question 18

Ethan received $135,000 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?

Accepted Answer

A)  $9,823 
B)  $9,918 
C)  $10,243 
D)  $10,328 
A)  $9,823 
B)  $9,918 
C)  $10,243 
D)  $10,328

Question 19

Which type of tax is a real property tax?

Accepted Answer

A)  Income tax 
B)  Consumption tax 
C)  Wealth tax 
D)  Use tax 
A)  Income tax 
B)  Consumption tax 
C)  Wealth tax 
D)  Use tax

Question 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?

Accepted Answer

A)  The average tax rate 
B)  The marginal tax rate 
C)  The nominal tax rate 
D)  The effective tax rate 
A)  The average tax rate 
B)  The marginal tax rate 
C)  The nominal tax rate 
D)  The effective tax rate

All interest paid to a taxpayer must be included in gross income.

Elena owns 40% of Martinez, Inc., a regular C corporation, that reported net income of $80,000 for the year. During the year $8,000 was distributed to Elena from the corporation. How much income from the corporation should Elena include in her taxable income for the year?

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.

Which of the following federal income tax rates applies to a C corporation in 2018?

A corporation incurring a net operating loss in 2018 can only carry that loss forward to offset profits in future years.

Which of these entities is taxed directly on its income?

Which of the following best describes horizontal equity?

What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?

What is a corporation's annual deduction for capital losses?

A flat tax generally would be considered a regressive tax.

When appreciated property is transferred, the gift tax is based on

Which of the following types of taxes is a consumption tax?

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?

Which of the following is normally not included in gross income?

Ethan received $135,000 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?

Which type of tax is a real property tax?

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?

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 1: Introduction to Taxation

All interest paid to a taxpayer must be included in gross income.

Elena owns 40% of Martinez, Inc., a regular C corporation, that reported net income of $80,000 for the year. During the year $8,000 was distributed to Elena from the corporation. How much income from the corporation should Elena include in her taxable income for the year?

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.

Which of the following federal income tax rates applies to a C corporation in 2018?

A corporation incurring a net operating loss in 2018 can only carry that loss forward to offset profits in future years.

Which of these entities is taxed directly on its income?

Which of the following best describes horizontal equity?

What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?

What is a corporation's annual deduction for capital losses?

A flat tax generally would be considered a regressive tax.

When appreciated property is transferred, the gift tax is based on

Which of the following types of taxes is a consumption tax?

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?

Which of the following is normally not included in gross income?

Ethan received $135,000 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?

Which type of tax is a real property tax?

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?

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters