Question 1

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's earnings and profits.How much income from the corporation should Elena include in her gross income for the year?

Accepted Answer

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

Question 2

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

Question 3

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?

Accepted Answer

A) $20,000 
B) $21,000 
C) $23,000 
D) $33,000

Question 4

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) $1,344 
C) $4,144 
D) $4,389 
E) $4,655

Question 5

Which of the following is an objective of taxation?

Accepted Answer

A) Raise revenue 
B) Foster social goals 
C) Stimulate the economy 
D) All of the above

Question 6

All limited liability companies (LLCs) can file their tax returns as partnerships.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

The value added tax is a type of consumption tax.

Accepted Answer

A) True 
 B)False

Question 9

There are three basic taxable entities: the individual, the fiduciary, and the C corporation.

Accepted Answer

A) True 
 B)False

Question 10

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 Terri's deductible loss (included in her gross income) as a result of her 50 percent interest in TT?

Accepted Answer

A) $75,000 
B) $51,000 
C) $20,000 
D) $16,000

Question 11

The 16th Amendment to the US Constitution that provided for an income tax was ratified in 1939.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

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

Question 14

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 15

A corporation incurring a net operating loss in 2019 can only carry that loss forward to offset profits in future years.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

What is Jerry's stock basis at the end of the second year if they organize the business as an S corporation?

Accepted Answer

A) $0 
B) $6,300 
C) $27,950 
D) $15,050 
E) $15,400

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

A) The Internal Revenue Code of 1913 
B) The Internal Revenue Code of 1954 
C) The Internal Revenue Code of 1986 
D) The Internal Revenue Code of 2018

Exam 1: Introduction to Taxation

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's earnings and profits.How much income from the corporation should Elena include in her gross income for the year?

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?

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?

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

Which of the following is an objective of taxation?

All limited liability companies (LLCs) can file their tax returns as partnerships.

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

The value added tax is a type of consumption tax.

There are three basic taxable entities: the individual, the fiduciary, and the C corporation.

The 16^th Amendment to the US Constitution that provided for an income tax was ratified in 1939.

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

Which of the following best describes horizontal equity?

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?

A corporation incurring a net operating loss in 2019 can only carry that loss forward to offset profits in future years.

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

What is Jerry's stock basis at the end of the second year if they organize the business as an S corporation?

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

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

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