Question 1

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. How much tax will Jerry pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as a partnership?

Accepted Answer

A)   $6,930
B)   $6,006
C)   $5,712
D)   $3,927
E)   $3,003 C

Question 2

Daniel is a single with taxable income of $40,000 in 2018. What is his marginal tax rate?

Accepted Answer

A)   10%
B)   12%
C)   22%
D)   24% C

Question 3

Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2018.

Accepted Answer

A) True 
 B)False  False

Question 4

Crystal invested $8,000 cash in CRK Partnership for a 30% general partnership interest. In its first year of operations, CRK lost $15,000. In its second year of operations, CRK lost an additional $14,000. How much of the second year's losses can Crystal deduct in that year?

Accepted Answer

A)   $700
B)   $2,400
C)   $3,500
D)   $4,200

Question 5

Which of the following types of taxes is not levied by the U.S. government?

Accepted Answer

A)   Excise tax
B)   Income tax
C)   Value added tax
D)   Gift tax

Question 6

Explain how horizontal equity differs from vertical equity.

Accepted Answer

The answer of Explain how horizontal equity differs from vertical...

Question 7

The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals and C corporations.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following business entities does not file a separate tax return to report business operations?

Accepted Answer

A)   Sole proprietorship
B)   S corporation
C)   C corporation
D)   Partnership

Question 9

Two married persons with moderately high incomes will pay more taxes than two single persons with the same income. This is commonly called:

Accepted Answer

A)   vertical equity.
B)   horizontal equity.
C)   a marriage bonus.
D)   a marriage penalty.

Question 10

Compare a sales tax to a use tax.

Accepted Answer

The answer of Compare a sales tax to a use...

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. How much tax will Matt pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as a partnership?

Accepted Answer

A)   $10,920
B)   $9,464
C)   $7,956
D)   $8,814
E)   $4,732

Question 12

The person receiving the gift pays the gift tax.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a type of wealth tax?

Accepted Answer

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

Question 14

Which of the following types of taxes is levied by almost all states on some or all goods purchased?

Accepted Answer

A)   Sales tax
B)   Income tax
C)   Property tax
D)   Wealth transfer tax

Question 15

Darden Corporation has taxable income of $200,000. If it distributes 25 percent of its after-tax income to its sole shareholder who has other taxable income of $103,000, what is the total tax burden on this $200,000 of income?

Accepted Answer

The answer of Darden Corporation has taxable income of $200,000....

Question 16

Both sales and use taxes are collected in the state in which the sale takes place.

Accepted Answer

A) True 
 B)False

Question 17

What are the fiduciary entities and how are they created?

Accepted Answer

The answer of What are the fiduciary entities and how...

Question 18

Sylvester, single, has $12,000 in deductions when filing his income tax return. 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.)

Accepted Answer

The answer of Sylvester, single, has $12,000 in deductions when...

Question 19

Which of the following are included in Adam Smith's characteristics of a good tax?

Accepted Answer

A)   Certainty
B)   Economy
C)   Convenience
D)   All are included
E)   None are included

Question 20

Partnerships and S corporations are flow-through entities.

Accepted Answer

A) True 
 B)False

Exam 1: Introduction to Taxation

Daniel is a single with taxable income of $40,000 in 2018. What is his marginal tax rate?

Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2018.

Crystal invested $8,000 cash in CRK Partnership for a 30% general partnership interest. In its first year of operations, CRK lost $15,000. In its second year of operations, CRK lost an additional $14,000. How much of the second year's losses can Crystal deduct in that year?

Which of the following types of taxes is not levied by the U.S. government?

Explain how horizontal equity differs from vertical equity.

The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals and C corporations.

Which of the following business entities does not file a separate tax return to report business operations?

Two married persons with moderately high incomes will pay more taxes than two single persons with the same income. This is commonly called:

Compare a sales tax to a use tax.

The person receiving the gift pays the gift tax.

Which of the following is a type of wealth tax?

Which of the following types of taxes is levied by almost all states on some or all goods purchased?

Darden Corporation has taxable income of $200,000. If it distributes 25 percent of its after-tax income to its sole shareholder who has other taxable income of $103,000, what is the total tax burden on this $200,000 of income?

Both sales and use taxes are collected in the state in which the sale takes place.

What are the fiduciary entities and how are they created?

Which of the following are included in Adam Smith's characteristics of a good tax?

Partnerships and S corporations are flow-through entities.