Question 1

George recently paid $50 to renew his driver's license. The $50 payment is considered a tax.

Accepted Answer

A) True 
 B)False

Question 2

The two components of the tax calculation are the tax rate and the taxpayer's status.

Accepted Answer

A) True 
 B)False

Question 3

Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 7.8%. How would you advise Jackson to invest his money?

Accepted Answer

A)  Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds. 
B)  Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds. 
C)  Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds. 
D)  Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds. 
E)  None of these. 
A)  Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds. 
B)  Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds. 
C)  Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds. 
D)  Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds. 
E)  None of these.

Question 4

Margaret was issued a $150 speeding ticket. This is:

Accepted Answer

A)  A tax because payment is required by law 
B)  A tax because the payment is not related to any specific benefit received from the government agency collecting the ticket 
C)  Not a tax because it is considered a fine intended to punish illegal behavior 
D)  A tax because it is imposed by a government agency 
E)  Not a tax because Margaret could have avoided payment if she did not speed 
A)  A tax because payment is required by law 
B)  A tax because the payment is not related to any specific benefit received from the government agency collecting the ticket 
C)  Not a tax because it is considered a fine intended to punish illegal behavior 
D)  A tax because it is imposed by a government agency 
E)  Not a tax because Margaret could have avoided payment if she did not speed

Question 5

How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?

Accepted Answer

A)  $16,200 
B)  $6,300 
C)  $4,900 
D)  $12,600 
E)  None of these 
A)  $16,200 
B)  $6,300 
C)  $4,900 
D)  $12,600 
E)  None of these

Question 6

One key characteristic of a tax is that it is a required payment to a governmental agency.

Accepted Answer

A) True 
 B)False

Question 7

Implicit taxes are indirect taxes on tax-favored assets.

Accepted Answer

A) True 
 B)False

Question 8

Self employment taxes are charged on self employment income in addition to any federal income tax.

Accepted Answer

A) True 
 B)False

Question 9

If Susie earns $750,000 in taxable income and files as head of household for year 2014, what is Susie's average tax rate (rounded)?

Accepted Answer

A)  33.24% 
B)  33.87% 
C)  35.00% 
D)  39.60% 
E)  None of these 
A)  33.24% 
B)  33.87% 
C)  35.00% 
D)  39.60% 
E)  None of these

Question 10

What is Leonardo and Theresa's effective tax rate for year 2014 (rounded)?

Accepted Answer

A)  15.00% 
B)  18.63% 
C)  21.28% 
D)  28.00% 
E)  None of these 
A)  15.00% 
B)  18.63% 
C)  21.28% 
D)  28.00% 
E)  None of these

Question 11

Which of the following would not be a failure of the horizontal equity concept?

Accepted Answer

A)  Two taxpayers with identical income pay different amounts of tax because one taxpayer's income includes tax exempt interest. 
B)  Two taxpayers pay different amounts of property tax amounts on similar plots of land (i.e., same value) because one plot of land is used to raise crops. 
C)  Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more. 
D)  All of these. 
E)  None of these. 
A)  Two taxpayers with identical income pay different amounts of tax because one taxpayer's income includes tax exempt interest. 
B)  Two taxpayers pay different amounts of property tax amounts on similar plots of land (i.e., same value) because one plot of land is used to raise crops. 
C)  Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more. 
D)  All of these. 
E)  None of these.

Question 12

In considering the "economy" criterion in evaluating tax systems, one must consider this criterion from both the taxpayer and the government's perspective.

Accepted Answer

A) True 
 B)False

Question 13

A sales tax is a common example of a progressive tax rate structure.

Accepted Answer

A) True 
 B)False

Question 14

A flat tax is an example of a graduated tax system.

Accepted Answer

A) True 
 B)False

Question 15

Property taxes may be imposed on both real and personal property.

Accepted Answer

A) True 
 B)False

Question 16

What is Manny's current marginal tax rate for year 2014?

Accepted Answer

A)  18.63% 
B)  28.00% 
C)  15.72% 
D)  22.86% 
E)  None of these 
A)  18.63% 
B)  28.00% 
C)  15.72% 
D)  22.86% 
E)  None of these

Question 17

If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2014?

Accepted Answer

A)  27.75% 
B)  17.50% 
C)  25.00% 
D)  28.00% 
E)  None of these 
A)  27.75% 
B)  17.50% 
C)  25.00% 
D)  28.00% 
E)  None of these

Question 18

Given the following tax structure, what is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to effective tax rates? $\begin{array}{lrrc}
Taxpayer&Salary&\text{Muni-Bond Interest}
&\text{Total Tax}\
\hline\
\text { Diego } & 30,000 & 10,000 & 1,500 \
\text { Dora } & 50,000 & 5,000 & ? ? ?
\end{array}$

Accepted Answer

Diego's average tax rate is 5%. @#LAT-DLM& A 5% av

Question 19

A common example of an employment related tax is the Medicare tax.

Accepted Answer

A) True 
 B)False

Question 20

Junior earns $80,000 taxable income as a regional circuit stock car driver and is taxed at an average rate of 25 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such that Junior's average tax rate increases from 25% to 30%, how much more income tax will he pay assuming that the income effect is larger than the substitution effect? What effect will this tax rate change have on the tax base and tax collected? What will happen to the government's tax revenues if Junior chooses to spend more time pursuing his other passions besides work (e.g., earns only $60,000 in taxable income) in response to the tax rate change? What is the term that describes this type of reaction to a tax rate increase? (Round your answers to two decimal places.)

Accepted Answer

Under the current income tax, Junior has

Exam 1: An Introduction to Tax

George recently paid $50 to renew his driver's license. The $50 payment is considered a tax.

The two components of the tax calculation are the tax rate and the taxpayer's status.

Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 7.8%. How would you advise Jackson to invest his money?

Margaret was issued a $150 speeding ticket. This is:

How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?

One key characteristic of a tax is that it is a required payment to a governmental agency.

Implicit taxes are indirect taxes on tax-favored assets.

Self employment taxes are charged on self employment income in addition to any federal income tax.

If Susie earns $750,000 in taxable income and files as head of household for year 2014, what is Susie's average tax rate (rounded)?

What is Leonardo and Theresa's effective tax rate for year 2014 (rounded)?

Which of the following would not be a failure of the horizontal equity concept?

In considering the "economy" criterion in evaluating tax systems, one must consider this criterion from both the taxpayer and the government's perspective.

A sales tax is a common example of a progressive tax rate structure.

A flat tax is an example of a graduated tax system.

Property taxes may be imposed on both real and personal property.

What is Manny's current marginal tax rate for year 2014?

If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2014?

A common example of an employment related tax is the Medicare tax.

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

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