Question 1

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Accepted Answer

A)  Issue treasury bonds 
B)  Cut funding to various federal projects 
C)  Increase federal spending 
D)  Issue treasury bonds and cut funding to various federal projects but not increase federal spending 
E)  None of these 
A)  Issue treasury bonds 
B)  Cut funding to various federal projects 
C)  Increase federal spending 
D)  Issue treasury bonds and cut funding to various federal projects but not increase federal spending 
E)  None of these D

Question 2

In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).

Accepted Answer

A) True 
 B)False  True

Question 3

The difficulty in calculating a tax is typically in the determination of:

Accepted Answer

A)  The correct tax rate 
B)  Where to file the tax return 
C)  The tax base 
D)  The due date for the return 
E)  None of these 
A)  The correct tax rate 
B)  Where to file the tax return 
C)  The tax base 
D)  The due date for the return 
E)  None of these C

Question 4

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

Accepted Answer

A) True 
 B)False

Question 5

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2014, what is his current marginal tax rate?

Accepted Answer

A)  15.00% 
B)  25.00% 
C)  28.00% 
D)  33.00% 
E)  None of these 
A)  15.00% 
B)  25.00% 
C)  28.00% 
D)  33.00% 
E)  None of these

Question 6

Which of the following statements is true?

Accepted Answer

A)  Municipal bond interest is subject to explicit federal tax 
B)  Municipal bond interest is subject to implicit tax 
C)  Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk 
D)  All of these are true 
E)  None of these is true 
A)  Municipal bond interest is subject to explicit federal tax 
B)  Municipal bond interest is subject to implicit tax 
C)  Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk 
D)  All of these are true 
E)  None of these is true

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Relative to explicit taxes, implicit taxes are much easier to estimate.

Accepted Answer

A) True 
 B)False

Question 9

Consider the following tax rate structures. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?

Accepted Answer

@#IMG-DLM& The tax rate schedule is horizontally e

Question 10

Taxes influence business decisions such as where a business should locate or how a business should be structured.

Accepted Answer

A) True 
 B)False

Question 11

The largest federal tax, in terms of revenue collected, is the social security tax.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is true regarding tax-advantaged assets?

Accepted Answer

A)  They are typically subject to excise taxes to account for their low explicit taxes 
B)  A corporate bond is typically considered a tax-advantaged asset 
C)  They are often subject to implicit taxes 
D)  A corporate bond is typically considered a tax-advantaged asset and they are often subject to implicit taxes are correct but not they are typically subject to excise taxes to account for their low explicit taxes 
E)  None of these 
A)  They are typically subject to excise taxes to account for their low explicit taxes 
B)  A corporate bond is typically considered a tax-advantaged asset 
C)  They are often subject to implicit taxes 
D)  A corporate bond is typically considered a tax-advantaged asset and they are often subject to implicit taxes are correct but not they are typically subject to excise taxes to account for their low explicit taxes 
E)  None of these

Question 13

What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2014?

Accepted Answer

A)  7.50% 
B)  10.00% 
C)  8.00% 
D)  7.20% 
E)  None of these 
A)  7.50% 
B)  10.00% 
C)  8.00% 
D)  7.20% 
E)  None of these

Question 14

Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?

Accepted Answer

@#IMG-DLM& We cannot evaluate whether the tax rate

Question 15

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 16

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 17

Nelson has the choice between investing in a city of Fruithurst bond at 4% or a J.B. Ribs, Inc. bond at 6.5%. Assuming that both bonds have the same non-tax characteristics and that Nelson has a 40% marginal tax rate, in which bond should he invest? What interest rate offered by J.B. Ribs, Inc. would make Nelson indifferent between investing in the two bonds?

Accepted Answer

Nelson's after tax rate of return on the

Question 18

Implicit taxes are indirect taxes on tax-favored assets.

Accepted Answer

A) True 
 B)False

Question 19

A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

Accepted Answer

A) True 
 B)False

Question 20

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? $\begin{array} { l c r c } 
\underline{\text { Taxpayer }} & \underline{\text { Salary }} & \underline{\text { Muni-Bond Interest }} & \underline{\text { Total Tax} } \
\text { Diego } & 30,000 & 10,000 & 1,500  \
\text { Dora } & 50,000 & 5,000  & ? ? ?
\end{array}$

Accepted Answer

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

Exam 1: An Introduction to Tax

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).

The difficulty in calculating a tax is typically in the determination of:

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2014, what is his current marginal tax rate?

Which of the following statements is true?

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

Relative to explicit taxes, implicit taxes are much easier to estimate.

Consider the following tax rate structures. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?

Taxes influence business decisions such as where a business should locate or how a business should be structured.

The largest federal tax, in terms of revenue collected, is the social security tax.

Which of the following is true regarding tax-advantaged assets?

What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2014?

Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?

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)?

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

Implicit taxes are indirect taxes on tax-favored assets.

A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

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

Filters