ACC 555 Midterm Exam Answers
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1) The federal income tax is the
dominant form of taxation by the federal government.
2) The Sixteenth Amendment permits
the passage of a federal income tax.
3) When a change in the tax law is
deemed necessary by Congress, the entire Internal Revenue Code must be revised.
4) A progressive tax rate structure
is one where the rate of tax increases as the tax base increases.
5) The terms “progressive tax” and
“flat tax” are synonymous.
6) A proportional tax rate is one
where the rate of the tax is the same for all taxpayers, regardless of income
levels.
7) Regressive tax rates decrease as
the tax base increases.
8) The marginal tax rate is useful
in tax planning because it measures the tax effect of a proposed transaction.
9) A taxpayer’s average tax rate is
the tax rate applied to an incremental amount of taxable income that is added
to the tax base.
10) If a taxpayer’s total tax
liability is $30,000, taxable income is $100,000, and economic income is
$120,000, the average tax rate is 30 percent.
11) If a taxpayer’s total tax
liability is $4,000, taxable income is $20,000, and total economic income is
$40,000, then the effective tax rate is 20 percent.
12) All states impose a state income
tax which is generally based on an individual’s federal adjusted gross income
(AGI) with minor adjustments.
13) The unified transfer tax system,
comprised of the gift and estate taxes, is based upon the total property
transfers an individual makes during lifetime and at death.
14) Gifts between spouses are
generally exempt from transfer taxes.
15) The primary liability for
payment of the gift tax is imposed upon the donee.
16) For gift tax purposes, a $14,000
annual exclusion per donee is permitted.
17) Property is generally included
on an estate tax return at its historical cost basis.
18) Property transferred to the
decedent’s spouse is exempt from the estate tax because of the estate tax
marital deduction provision.
19) Gifts made during a taxpayer’s
lifetime may affect the amount of estate tax paid by the taxpayer’s estate.
20) While federal and state income
taxes as well as the federal gift and estate taxes are generally progressive in
nature, property taxes are proportional.
21) Adam Smith’s canons of taxation
are equity, certainty, convenience and economy.
22) The primary objective
of the federal income tax law is to achieve various economic and social policy
objectives.
23) Individuals are the principal
taxpaying entities in the federal income tax system.
24) The various entities in the
federal income tax system may be classified into two general categories, taxpaying
entities (such as individuals and C [regular] corporations) and flow-through
entities such as sole proprietorships, partnerships, S corporations,
and limited liability companies.
25) In 2013, dividends paid from
most U.S. corporations are taxed at the same rate as the recipients’ salaries
and wages.
26) Flow-through entities do not
have to file tax returns since they are not taxable entities.
27) S Corporations result in a
single level of taxation.
28) In a limited liability
partnership, a partner is not liable for his partner’s acts of negligence or
misconduct.
29) Limited liability companies may
elect to be taxed as corporations.
30) Limited liability company
members (owners) are responsible for the liabilities of their limited liability
company.
31) The tax law encompasses
administrative and judicial interpretations, such as Treasury regulations,
revenue rulings, revenue procedures, and court decisions, as well as statutes.
32) Generally, tax legislation is
introduced first in the Senate and referred to the Senate Finance Committee.
33) The Internal Revenue Service is
the branch of the Treasury Department responsible for administering the federal
tax law.
34) Generally, the statute of
limitations is three years from the later of the date the tax return is filed
or the due date.
35) Arthur pays tax of $5,000 on
taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on
$120,000. The tax is a
- A) progressive tax.
- B) proportional tax.
- C) regressive tax.
- D) None of the above.
36) Which of the following taxes is
progressive?
- A) sales tax
- B) excise tax
- C) property tax
- D) income tax
37) Which of the following taxes is
proportional?
- A) gift tax
- B) income tax
- C) sales tax
- D) Federal Insurance Contributions Act (FICA)
38) Which of the following taxes is
regressive?
- A) Federal Insurance Contributions Act (FICA)
- B) excise tax
- C) property tax
- D) gift tax
39) Sarah contributes $25,000 to a
church. Sarah’s marginal tax rate is 35% while her average tax rate is 25%.
After considering her tax savings, Sarah’s contribution costs
- A) $6,250.
- B) $8,750.
- C) $16,250.
- D) $18,750.
40) Helen, who is single, is
considering purchasing a residence that will provide a $28,000 tax deduction
for property taxes and mortgage interest. If her marginal tax rate is 25% and
her effective tax rate is 20%, what is the amount of Helen’s tax savings from
purchasing the residence?
- A) $5,600
- B) $7,000
- C) $21,000
- D) $22,400
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