Question 1

Compare the characteristics of the Current and Deferred Models.

Accepted Answer

In the Current Model,only after-tax doll

Question 2

Given that Dn is the amount of deferred compensation received in lieu of $1 currently,which one of the following decision rules can the employee and the employer apply when evaluating whether deferred compensation is preferable to current salary?

Accepted Answer

A)  If the employee's indifference level of Dn exceeds the employer's indifference level of Dn, the employer will pay deferred compensation up to the employee's indifference level. 
B)  If the employee's indifference level of Dn is less than the employer's indifference level of Dn, the employee will only receive a current salary because the employer will not pay the employee's required deferred compensation. 
C)  If the employee's indifference level of Dn is less than the employer's indifference level of Dn, the employer can pay deferred compensation up to its indifference level. 
D)  None of the decision rules in A, B, or C above hold true. 
A)  If the employee's indifference level of Dn exceeds the employer's indifference level of Dn, the employer will pay deferred compensation up to the employee's indifference level. 
B)  If the employee's indifference level of Dn is less than the employer's indifference level of Dn, the employee will only receive a current salary because the employer will not pay the employee's required deferred compensation. 
C)  If the employee's indifference level of Dn is less than the employer's indifference level of Dn, the employer can pay deferred compensation up to its indifference level. 
D)  None of the decision rules in A, B, or C above hold true.

Question 3

Taxpayers often have to decide between contributing to a traditional deductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 4

Nolan earns a salary of $80,000 and has a flat tax rate of 28%.The amount of after-tax dollars he has to invest is

Accepted Answer

A)  $22,400. 
B)  $57,600. 
C)  $56,000. 
D)  $80,000. 
A)  $22,400. 
B)  $57,600. 
C)  $56,000. 
D)  $80,000.

Question 5

At the beginning of year 1,Sandeep invests $10,000 in a money market fund that pays a 3% annual return before taxes.Sandeep's marginal tax rate is 25%,and he allows the after-tax earnings to remain in the money market fund.That is,he withdraws only enough cash to pay the taxes on the earnings.What is his after-tax accumulation at the end of year 2?

Accepted Answer

A)  $10,455 
B)  $10,609 
C)  $10,690 
D)  None of the above 
A)  $10,455 
B)  $10,609 
C)  $10,690 
D)  None of the above

Question 6

In the Exempt Model

Accepted Answer

A)  investment earnings are taxed currently. 
B)  investment earnings are exempt from explicit taxation. 
C)  investment earnings are taxed at the end of the investment period. 
D)  the initial investment is deductible or excludible from gross income, and the investment earnings are taxed at the end of the investment period. 
A)  investment earnings are taxed currently. 
B)  investment earnings are exempt from explicit taxation. 
C)  investment earnings are taxed at the end of the investment period. 
D)  the initial investment is deductible or excludible from gross income, and the investment earnings are taxed at the end of the investment period.

Question 7

Charlene can invest $4,000 of after-tax dollars (AT$) directly in a taxable bond outside an IRA,or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case the bond yields an annual 7% before-tax rate of return (BTROR).Charlene's marginal tax rate is 20%,and she expects it to remain so for the entire investment horizon of 25 years.What is her annualized after-tax rate of return (annualized ATROR) for the "bond outside the IRA"?

Accepted Answer

A)  5.6% 
B)  6% 
C)  6.5% 
D)  7% 
A)  5.6% 
B)  6% 
C)  6.5% 
D)  7%

Question 8

In the Pension Model

Accepted Answer

A)  investment earnings are taxed currently. 
B)  investment earnings are exempt from explicit taxation. 
C)  investment earnings are taxed at the end of the investment period. 
D)  the initial investment is deductible or excludible from gross income, and the investment earnings are taxed at the end of the investment period. 
A)  investment earnings are taxed currently. 
B)  investment earnings are exempt from explicit taxation. 
C)  investment earnings are taxed at the end of the investment period. 
D)  the initial investment is deductible or excludible from gross income, and the investment earnings are taxed at the end of the investment period.

Question 9

Jorge contributes $5,000 to a traditional nondeductible IRA in the current year and makes no subsequent contributions.Assume that the investment in the IRA yields 6% per year and that Jorge allows his investment to accumulate for 20 years.At the end of twenty years,he withdraws all of the amounts from the IRA when his marginal tax rate is 30%.What is his after-tax accumulation?

Accepted Answer

@#IMG-DLM& Or using the Deferr

Question 10

In the Deferred Model,investment earnings are taxed at the end of the investment period.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following concerning implicit taxes and clienteles is not true?

Accepted Answer

A)  Market forces drive down the BTROR of tax-favored assets. 
B)  The reduced return of tax-favored assets is an implicit tax. 
C)  Investors whose tax rate exceeds that of the marginal investor can reap some benefit through the clientele effect. 
D)  Marginal investors will always benefit from the implicit tax on tax-favored investments. 
A)  Market forces drive down the BTROR of tax-favored assets. 
B)  The reduced return of tax-favored assets is an implicit tax. 
C)  Investors whose tax rate exceeds that of the marginal investor can reap some benefit through the clientele effect. 
D)  Marginal investors will always benefit from the implicit tax on tax-favored investments.

Question 12

The general form of the annualized after-tax rate of return (annualized ATROR) for the Deferred Model can be expressed as

Accepted Answer

A)  rann = [(1 + R)n(1 - tn) + tn]1/n - 1. 
B)  rann = [(1 - R)n(1 - t) + t]1/n - 1. 
C)  rann = [(1 + R)n(1 + t) + t]1/n - 1. 
D)  rann = [(1 + R)n(1 + t) - t]1/n - 1. 
A)  rann = [(1 + R)n(1 - tn) + tn]1/n - 1. 
B)  rann = [(1 - R)n(1 - t) + t]1/n - 1. 
C)  rann = [(1 + R)n(1 + t) + t]1/n - 1. 
D)  rann = [(1 + R)n(1 + t) - t]1/n - 1.

Question 13

Brianna purchases stock for $8,000.The stock appreciates (grows) at a 6% rate before taxes.Brianna sells the stock ten years later for $14,327.Brianna has a 39.6% marginal tax rate,but the stock sale is a LTCG taxed at 20%.Ignore the 3.8% Medicare surtax on net investment income.What are Brianna's after-tax proceeds?

Accepted Answer

$8,000 [(1.06)¹⁰ (1 -

Question 14

A flow-through entity's primary characteristic is that income escapes taxation at the entity level and flows-through to be taxed at the ownership level.

Accepted Answer

A) True 
 B)False

Question 15

Rachel invests $5,000 in a money market account which earns a 5% before-tax return.Rachel has a 20% marginal tax rate.Rachel makes the one-time investment and leaves the funds in the account for 10 years.She allows all after-tax earnings to remain in the account.What is her after-tax accumulation after 10 years?

Accepted Answer

5,000 [1 +

Question 16

When evaluating current salary versus deferred compensation,an employer considers the fact that a current salary is deducted in the current year and provides an immediate tax benefit.

Accepted Answer

A) True 
 B)False

Question 17

The C Corporation Model is a variation of the Flow-Through Model,where taxation occurs at both the entity and the owner levels.

Accepted Answer

A) True 
 B)False

Question 18

In the Exempt Model,the earnings are excluded from explicit taxation.

Accepted Answer

A) True 
 B)False

Question 19

The nondeductible traditional IRA is a classic example of the Pension Model.

Accepted Answer

A) True 
 B)False

Question 20

The Flow-Through Model applies to a sole proprietorship.

Accepted Answer

A) True 
 B)False

Compare the characteristics of the Current and Deferred Models.

Given that D_n is the amount of deferred compensation received in lieu of $1 currently,which one of the following decision rules can the employee and the employer apply when evaluating whether deferred compensation is preferable to current salary?

Taxpayers often have to decide between contributing to a traditional deductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Nolan earns a salary of $80,000 and has a flat tax rate of 28%.The amount of after-tax dollars he has to invest is

In the Exempt Model

In the Pension Model

In the Deferred Model,investment earnings are taxed at the end of the investment period.

Which of the following concerning implicit taxes and clienteles is not true?

The general form of the annualized after-tax rate of return (annualized ATROR) for the Deferred Model can be expressed as

A flow-through entity's primary characteristic is that income escapes taxation at the entity level and flows-through to be taxed at the ownership level.

When evaluating current salary versus deferred compensation,an employer considers the fact that a current salary is deducted in the current year and provides an immediate tax benefit.

The C Corporation Model is a variation of the Flow-Through Model,where taxation occurs at both the entity and the owner levels.

In the Exempt Model,the earnings are excluded from explicit taxation.

The nondeductible traditional IRA is a classic example of the Pension Model.

The Flow-Through Model applies to a sole proprietorship.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Filters

Exam 18: Taxes and Investment Planning

Compare the characteristics of the Current and Deferred Models.

Given that Dn is the amount of deferred compensation received in lieu of $1 currently,which one of the following decision rules can the employee and the employer apply when evaluating whether deferred compensation is preferable to current salary?

Taxpayers often have to decide between contributing to a traditional deductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Nolan earns a salary of $80,000 and has a flat tax rate of 28%.The amount of after-tax dollars he has to invest is

In the Exempt Model

In the Pension Model

In the Deferred Model,investment earnings are taxed at the end of the investment period.

Which of the following concerning implicit taxes and clienteles is not true?

The general form of the annualized after-tax rate of return (annualized ATROR) for the Deferred Model can be expressed as

A flow-through entity's primary characteristic is that income escapes taxation at the entity level and flows-through to be taxed at the ownership level.

When evaluating current salary versus deferred compensation,an employer considers the fact that a current salary is deducted in the current year and provides an immediate tax benefit.

The C Corporation Model is a variation of the Flow-Through Model,where taxation occurs at both the entity and the owner levels.

In the Exempt Model,the earnings are excluded from explicit taxation.

The nondeductible traditional IRA is a classic example of the Pension Model.

The Flow-Through Model applies to a sole proprietorship.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Filters

Given that D_n is the amount of deferred compensation received in lieu of $1 currently,which one of the following decision rules can the employee and the employer apply when evaluating whether deferred compensation is preferable to current salary?