(Test Bank) Concepts In Federal Taxation 2022

Higgins,Skalberg, 29

Business

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29th Edition

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Test Bank for Concepts In Federal Taxation 2022, The downloadable file consists of 502 pages, and the total size of the file is 5.88 MB. Purchase now only for highly discounted price.

Author(s): Higgins, Skalberg

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Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 1 1. A tax is an enforced contribution used to finance the functions of government. a. True b. False ANSWER: True 2. Adam Smith identified efficiency, certainty, convenience, and economy as the four basic requirements for a good tax system. a. True b. False ANSWER: False 3. Congress is required to ensure that the tax law has the following characteristics: equality, certainty, convenience, and economy. a. True b. False ANSWER: False 4. Horizontal equity exists when two similarly situated taxpayers are taxed the same. a. True b. False ANSWER: True 5. The marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved by the next dollar of deduction. a. True b. False ANSWER: True 6. A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases. a. True b. False ANSWER: True 7. Employers are required to pay a federal unemployment tax of 6.2% of the first $10,000 in wages to each employee less a credit of up to 5.4% of state unemployment taxes paid. a. True b. False ANSWER: False 8. A deferral is like an exclusion in that it does not have a current tax effect. However, it differs in that an exclusion is never subject to tax, whereas a deferral will be subject to tax at some point of time in the future. a. True b. False ANSWER: True 9. An annual loss results from an excess of allowable deductions for a tax year over the reported income for the year. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 2 a. True b. False ANSWER: True 10. Self-employed people are required to make quarterly payments of their estimated tax liability. a. True b. False ANSWER: True 11. The statute of limitations is three years, and it runs for six years if a taxpayer omits gross income in excess of 25% of the gross income reported on the return. There is no statute of limitations if the taxpayer willfully defrauds the government. a. True b. False ANSWER: True 12. Gifts to qualified charitable organizations may be deducted as a charitable contribution, but it may not exceed 50% of a taxpayer’s adjusted gross income. a. True b. False ANSWER: False 13. Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability. a. True b. False ANSWER: False 14. All tax practitioners are governed by the AICPA’s Code of Professional Conduct. a. True b. False ANSWER: False 15. A CPA may prepare tax returns using estimates provided by the taxpayer if it is impracticable to obtain exact data and the estimates are reasonable. a. True b. False ANSWER: True 16. According to the IRS definition, which of the following is not a characteristic of a tax? a. The payment to the governmental authority is required by law. b. The payment relates to the receipt of a specific benefit. c. The payment is required pursuant to the legislative power to tax. d. The purpose of requiring the payment is to provide revenue to be used for public or governmental purposes. ANSWER: b Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 3 17. Which of the following payments would not be considered a tax? a. An assessment based on the selling price of the vehicle b. A local assessment for new sewers based on the amount of water used c. A local assessment for schools based on the value of the taxpayer's property d. A surcharge based on the amount of income tax already calculated ANSWER: b 18. Based on the definition given in Chapter 1 of the text, which of the following is a tax? I. A registration fee paid to the state to get a car license plate II. Two percent special sales tax for funding public education III. A special property tax assessment for installing sidewalks in the taxpayer's neighborhood IV. An income tax imposed by Chicago on persons living or working within the city limits a. Only statement I is correct. b. Only statement III is correct. c. Only statement IV is correct. d. Statements I and IV are correct. e. Statements II and IV are correct. ANSWER: e 19. Which of the following payments meets the IRS definition of a tax? a. A fee paid on the value of property transferred from one individual to another by gift b. A one-time additional property tax assessment to add a sidewalk to the neighborhood c. A fee paid on the purchase of aerosol producing products to fund ozone research d. A fee for a sticker purchased from a city that must be attached to garbage bags before the city garbage trucks pick up the bags. e. All of the above meet the definition of a tax. ANSWER: a 20. Which of the following payments is a tax? I. Artis paid the IRS a penalty of $475 (above his $11,184 income tax balance due) because he had significantly underpaid his estimated income tax. II. Lindsey paid $135 to the state of Indiana to renew her CPA license. III. Carrie paid a $3.50 toll to cross the Mississippi River. IV. Darnell paid $950 as property tax that applies to all property owners, and all school children will benefit from it. a. Only statement IV is correct. b. Only statement III is correct. c. Statements II and IV are correct. d. Statements I, II, and III are correct. e. Statements I, II, III, and IV are correct. ANSWER: a 21. Which of the following payments constitutes tax as defined by the IRS? a. Sewer fee charged added to a city trash collection bill b. A special assessment paid to the county to pave a street Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 4 c. A levy on the value of a deceased taxpayer's estate d. Payment of $300 to register an automobile; the $300 consists of a $50 registration fee, and $250 is based on the weight of the auto ANSWER: c 22. Which of the following statement(s) is/are included in Adam Smith’s four requirements for a good tax system? I. Changes in the tax law should be made as needed to raise revenue and for proper administration. II. A tax should be imposed in proportion to a taxpayer's ability to pay. III. A taxpayer should be required to pay a tax when it is most likely to be convenient for the taxpayer to make the payment. IV. The government must collect taxes equal to its expenses. a. Statements I and II are correct. b. Statements I and IV are correct. c. Statements II and III are correct. d. Statements II and IV are correct. e. Statements III and IV are correct. ANSWER: c 23. Which of the following are included among Adam Smith's criteria for evaluating a tax? I. Convenience II. Fairness III. Neutrality IV. Economy a. Statements I and II are correct. b. Statements I, II, and III are correct. c. Statements I and IV are correct. d. Statements II and III are correct. e. Statements I, II, III, and IV are correct. ANSWER: c 24. When planning for an investment that will extend over several years, the ability to predict how the results of the investment will be taxed is important. This statement is an example of: a. certainty. b. transparency c. equality. d. neutrality. e. fairness. ANSWER: a 25. Which of Adam Smith's requirements for a good tax system best supports the argument that the federal income tax rate structure should be progressive? a. Certainty b. Convenience c. Equality d. Neutrality Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 5 e. Sufficiency ANSWER: c 26. Pay-as-you-go withholding is consistent with Adam Smith's criteria of: a. certainty. b. convenience. c. economy. d. fairness. e. transparency. ANSWER: b 27. Adam Smith's concept of vertical equity is found in a tax rate structure that is: a. regressive. b. proportional. c. horizontal. d. progressive. e. economical. ANSWER: d 28. Vertical equity: I. means that those taxpayers who have the greatest ability to pay the tax should pay the greatest proportion of the tax. II. means that two similarly situated taxpayers are taxed the same. III. is reflected in the progressive nature of the federal income tax system. IV. exists when Avis, a single individual with 4 dependent children, and Art, a single individual with no dependents, both pay $2,400 income tax on equal $26,000 annual salaries. a. Statements III and IV are correct. b. Statements II and III are correct. c. Statements I and III are correct. d. Only statement IV is correct. e. Statements I, II, III, and IV are correct. ANSWER: c 29. Horizontal equity: I. means that those taxpayers who have the greatest ability to pay the tax should pay the greatest proportion of the tax. II. means that two similarly situated taxpayers are taxed the same. III. exists when Michael and Sam each earn $12,000 a year and pay $1,200 in tax. IV. exists when Avis, a single individual with 4 dependent children, and Art, a single individual with no dependents, both pay $2,400 income tax on equal $26,000 annual salaries. a. Statements III and IV are correct. b. Statements II and III are correct. c. Statements I and III are correct. d. Only statement IV is correct. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 6 e. Statements I, II, III, and IV are correct. ANSWER: b 30. If a taxpayer has a choice of receiving income in the current year versus the following year, which of the following tax rates is important in determining the year in which he should include the income? a. Average b. Effective c. Composite d. Marginal ANSWER: d 31. Jessica is single and has a 2021 taxable income of $203,300. She also received $15,000 of tax-exempt income. Jessica's marginal tax rate is: a. 21.1%. b. 22.0%. c. 22.7%. d. 32.0%. e. 35.0%. ANSWER: d 32. Andrea is single and has a 2021 taxable income of $203,300. She also received $15,000 of tax-exempt income. Andrea's average tax rate is: a. 21.5%. b. 22.0%. c. 22.6%. d. 32.0%. e. 35.0%. ANSWER: c 33. Maria is single and has a 2021 taxable income of $203,300. She also received $15,000 of tax-exempt income. Maria's effective tax rate is: a. 21.5%. b. 22.0%. c. 22.6%. d. 32.0%. e. 35.0%. ANSWER: a 34. Bob and Linda are married taxpayers filing jointly and have a 2021 taxable income of $271,050. They also received $20,000 of tax-exempt income. Their marginal tax rate is: a. 18.3%. b. 19.6%. c. 22.0%. d. 24.0%. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 7 e. 32.0%. ANSWER: d 35. Frank and Fran are married taxpayers filing jointly and have a 2021 taxable income of $271,050. They also received $20,000 of tax-exempt income. Their average tax rate is: a. 18.3% b. 19.6% c. 22.0% d. 24.0% e. 32.0% ANSWER: b 36. Jim and Anna are married taxpayers filing jointly and have a 2021 taxable income of $271,050. They also received $20,000 of tax-exempt income. Their effective tax rate is: a. 18.3%. b. 19.6%. c. 22.0%. d. 24.0%. e. 32.0%. ANSWER: a 37. Terry is a worker in a country named Pretoria. His salary is $46,000, and his taxable income is $52,000. Pretoria imposes a worker tax as follows: Employers withhold a tax of 20% of all wages and salaries. If taxable income as reported on the employee's income tax return is greater than $50,000, an additional 10% tax is withheld on all income. Terry's marginal tax rate is: a. 0%. b. 10%. c. 20%. d. 30%. ANSWER: d 38. The mythical country of Januvia imposes a tax based on the number of titanium coins each taxpayer owns at the end of each year per the following schedule: Number of titanium coins Tax 0 – 200 $500 + $5 per titanium coin 201 – 500 $1,000 + $6 per titanium coin > 500 $4,000 + $7 per titanium coin Marvin, a resident of Januvia, owns 300 titanium coins at the end of the current year. I. Marvin's titanium coins tax is $2,800. II. Marvin's marginal tax rate is $6. III. Marvin's average tax rate is $9.33. IV. Marvin's average tax rate is $6. a. Statements II and III are correct. b. Statements I, II, and IV are correct. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 8 c. Statements II and IV are correct. d. Statements I, II, and III are correct. e. Only statement II is correct. ANSWER: d 39. Jaun plans to give $5,000 to the American Diabetes Association. Jaun's marginal tax rate is 24%. His average tax rate is 21%. Jaun itemizes his deductions. The after-tax cost Juan's contribution is: a. $3,250. b. $3,400. c. $3,800. d. $3,950. e. $5,000. ANSWER: c 40. Katie pays $10,000 in tax-deductible property taxes. Katie’s marginal tax rate is 32%, average tax rate is 28%, and effective tax rate is 25%. Katie's tax savings from paying the property tax is: a. $1,600. b. $2,500. c. $2,800. d. $3,200. e. $10,000. ANSWER: d 41. Lee's 2021 taxable income is $110,000 before considering charitable contributions. Lee is a single individual. She makes a donation of $20,000 to the American Heart Association in December 2021. By how much did Lee's marginal tax rate decline simply because of the donation? a. 0% b. 10% c. 3% d. 5% e. 8% ANSWER: a 42. Shara's 2021 taxable income is $41,000 before considering charitable contributions but subtracting other itemized deductions of $14,000. Shara is a single individual. She makes a fully deductible donation of $5,000 to the American Heart Association in December 2021. By how much did Shara's marginal tax rate decline simply because of the donation? a. 0% b. 7% c. 3% d. 5% e. 10% ANSWER: e 43. Sally is a single individual. In 2021, she receives $20,000 of tax-exempt income in addition to her salary and other investment income of $100,000. Sally's 2021 tax return showed the following information: Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 9 Gross income $100,000 Deductions for adjusted gross income ( 4,000 ) Adjusted gross income $96,000 Itemized deductions (16,000) Taxable income $80,000 Total tax $13,349 Less: Income tax withheld from wages (13,590 ) Refund $241 Which of the following statements concerning Sally's tax rates is (are) correct? I. Sally's average tax rate is 16.7%. II. Sally's average tax rate is 13.3%. III. Sally's marginal tax rate is 22%. IV. Sally's marginal tax rate is 24%. a. Statements I and III are correct. b. Statements I and IV are correct. c. Statements II and III are correct. d. Statements II and IV are correct. e. Only statement IV is correct. ANSWER: a 44. Jered and Samantha are married. Their 2021 taxable income is $95,000 before considering a $10,000 deduction for adjusted gross income (AGI). What is the tax savings attributable to their deduction? a. $0 b. $1,200 c. $2,200 d. $2,400 e. $10,000 ANSWER: c 45. Betty is a single individual. In 2021, she receives $5,000 of tax-exempt income in addition to her salary and other investment income. Betty's 2021 tax return showed the following information: Gross income $90,000 Deductions for adjusted gross income ( 4,000 ) Adjusted gross income $86,000 Itemized deductions (14,400) Taxable income $71,600 Income tax $11,501 Less: Income tax withheld from wages (11,701 ) Refund $200 Which of the following statements concerning Betty's tax rates is (are) correct? I. Betty's average tax rate is 16.1%. II. Betty's average tax rate is 15.0%. III. Betty's effective tax rate is 16.1%. IV. Betty's effective tax rate is 15.0%. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 10 a. Statements I and III are correct. b. Statements I and IV are correct. c. Statements II and III are correct. d. Statements II and IV are correct. ANSWER: b 46. Katarina, a single taxpayer, has total income from all sources of $100,000 for 2021. Her taxable income after taking into consideration $25,000 in deductions and $10,000 in exclusions is $65,000. Katarina’s tax liability is $10,049. What are Katarina's marginal, average, and effective tax rates? a. 12% marginal; 15.5% average; 13.4% effective. b. 22% marginal; 15.5% average; 15.5% effective. c. 24% marginal; 13.4% average; 15.5% effective. d. 22% marginal; 15.5% average; 13.4% effective. e. 12% marginal; 13.4% average; 15.5% effective. ANSWER: d 47. Alan is a single taxpayer with a gross income of $88,000, a taxable income of $66,000, and an income tax liability of $10,269 for 2021. Alan also has $8,000 of tax-exempt interest income. What are Alan's marginal, average, and effective tax rates? a. 22% marginal; 13.9% average; 15.6% effective. b. 24% marginal; 13.9% average; 15.6% effective. c. 12% marginal; 15.6% average; 13.9% effective. d. 22% marginal; 15.6% average; 13.9% effective. ANSWER: d 48. A tax provision has been discussed that would add an additional marginal tax rate of 42% to be applied to an individual's taxable income in excess of $800,000. If this provision were to become law, what overall distributional impact would it have on our current income tax system? a. Proportional b. Regressive c. Progressive d. Disproportional e. None of the above ANSWER: c 49. The Federal income tax is a: a. revenue neutral tax. b. regressive tax. c. value -added tax. d. progressive tax. e. form of sales tax. ANSWER: d 50. A state sales tax levied on all goods and services sold is an example of a: a. progressive tax. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 11 b. regressive tax. c. proportional tax. d. value added tax. ANSWER: c 51. Indicate which of the following statements concerning the following tax rate structures is/are correct. When Income Total Tax Equals Equals Structure #1 10,000 600 100,000 5,000 Structure #2 15,000 900 75,000 4,500 Structure #3 13,000 975 86,000 6,600 I. Tax Structure #1 is proportional. II. Tax Structure #1 is regressive. III. Tax Structure #2 is progressive. IV. Tax Structure #3 is progressive. a. Only statement I is correct. b. Only statement III is correct. c. Statements I and II are correct. d. Statements II and IV are correct. e. Statements I, II, and IV are correct. ANSWER: d 52. Indicate which of the following statements concerning the following tax rate structures is/are correct. When Income Total Tax Equals Equals Structure #1 10,000 750 100,000 6,000 Structure #2 15,000 900 75,000 4,000 Structure #3 13,000 1,200 86,000 9,600 I. Tax structure #1 is regressive. II. Tax structure #1 is proportional. III. Tax structure #2 is progressive. IV. Tax structure #3 is progressive. a. Only statement I is correct. b. Only statement III is correct. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 12 c. Statements I and IV are correct. d. Statements II and IV are correct. e. Statements I, II, and IV are correct. ANSWER: c 53. Taxpayer A pays a tax of $3,300 on a taxable income of $10,000 while taxpayer B pays a tax of $6,600 on $20,000. The tax is a: a. proportional tax. b. regressive tax. c. progressive tax. d. vertical tax. ANSWER: a 54. The mythical country of Traviola imposes a tax based on the number of gold tokens each taxpayer owns at the end of each year per the following schedule: Number of Tokens Tax 0 – 200 $100 + $5 per Token 201 – 500 $1,000 + $6 per Token > 500 $4,000 + $7 per Token Traviola’s token tax is a a. proportional tax. b. regressive tax. c. progressive tax. d. value -added tax. ANSWER: c 55. The mythical country of Woodland imposes two taxes: Worker tax: Employers withhold ten percent of all wages and salaries. If taxable income as reported on the employee's income tax return is greater than $40,000, an additional 5% tax is levied on all income. Business tax: All businesses pay a tax on invested capital based on a valuation formula. The tax computed for three different amounts of invested capital is provided below: Invested Capital Tax $100,000 $12,000 $200,000 $16,000 $300,000 $20,000 According to the definitions in the text: I. the worker tax is a regressive tax rate structure. II. the business tax is a progressive tax rate structure. III. the worker tax is a progressive tax rate structure. IV. the business tax is a regressive tax rate structure. a. Statements I and III are correct. b. Statements II and III are correct. c. Only statement III is correct. d. Statements I and IV are correct. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 13 e. Statements III and IV are correct. ANSWER: e 56. Oliver pays a sales tax of $7.20 on the purchase of a lamp for $120. Michelle pays a sales tax of $9 on the purchase of a similar lamp for $150. Oliver's taxable income for the current year is $40,000. Michelle's taxable income is $55,000. I. The structure of the sales tax is regressive if it is based on taxable income. II. The structure of the sales tax is proportional if it is based on sales price. III. The structure of the sales tax is progressive if it is based on taxable income. IV. The average sales tax paid based on taxable income equals the marginal tax rate for this tax. a. Only statement I is correct. b. Only statement II is correct. c. Statements III and IV are correct. d. Statements II and IV are correct. e. Statements I, II, and IV are correct. ANSWER: e 57. Greg pays a sales tax of $7.20 on the purchase of a lamp for $120. Michelle pays a sales tax of $9 on the purchase of a similar lamp for $150. Greg's taxable income for the current year is $40,000. Michelle's taxable income is $55,000. I. The structure of the sales tax is progressive if it is based on taxable income. II. The structure of the sales tax is proportional if it is based on sales price. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. None of the statements are correct. ANSWER: b 58. Heidi and Anastasia are residents of the mythical country of Wetland. Heidi pays a $1,500 income tax on a taxable income of $6,000. Anastasia pays an income tax of $21,000 on a taxable income of $72,000. The income tax structure is: I. progressive. II. proportional. III. regressive. IV. value -added. V. marginal. a. Only statement I is correct. b. Only statement II is correct. c. Only statement III is correct. d. Only statement V is correct. e. Statements II and IV are correct. ANSWER: a 59. Elrod is an employee of Gomez, Inc. During 2021, Elrod receives a salary of $120,000 from Gomez. What amount should Gomez withhold from Elrod's salary as payment of Elrod's Social Security and Medicare taxes? a. $7,440.00 Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 14 b. $7,803.40 c. $8,422.65 d. $9,087.00 e. $9,180.00 ANSWER: e 60. Marie earns $80,000 as a sales manager for Household Books. How much Social Security and Medicare taxes does Marie have to pay for 2021? a. $4,960.00 b. $6,120.00 c. $6,400.00 d. $2,240.00 ANSWER: b 61. Samantha is a self-employed electrician. During 2021, her net self-employment income is $120,000. What is Samantha's self-employment tax? a. $15,570.26 b. $15,606.80 c. $16,832.50 d. $18,174.00 e. $18,360.00 ANSWER: e 62. Rayburn is the sole owner of a dance studio. During the current year, his net self-employment income from the dance studio is $50,000. What is Rayburn's self-employment tax? a. $3,825.00 b. $5,738.00 c. $6,200.00 d. $7,650.00 ANSWER: d 63. Employment taxes are: a. revenue neutral. b. regressive. c. value -added. d. progressive. e. proportional. ANSWER: e 64. Phyllis is an electrician employed by Bogie Company. Phil is a self-employed electrician. During the current year, Phyllis's salary is $75,000, and Phil's net self-employment income is $75,000. Which of the following statements about the Social Security and self-employment taxes paid is/are correct? I. Phil's self-employment tax is lesser than the Social Security tax paid on Phyllis's income. II. Phil pays more self-employment tax than what Phyllis pays in Social Security tax. Name: Class: Date: Chapter_01_Federal_Income_Taxation_An_Overview Copyright Cengage Learning. Powered by Cognero. Page 15 III. Phil and Phyllis pay the same amount of tax. IV. Phil's self-employment tax is equal to the Social Security tax paid on Phyllis's income. a. Only statement I is correct. b. Only statement II is correct. c. Only statement IV is correct. d. Statements I and III are correct. e. Statements II and IV are correct. ANSWER: e 65. Sally is an electrician employed by Bogie Company. Sam is a self-employed electrician. During the current year, Sally's salary is $85,000 and Sam's net self-employment income is $85,000. Which of the following statements about the Social Security and self-employment taxes paid is/are correct? I. Sam's self-employment tax is greater than the Social Security tax paid on Sally's income. II. Sam and Sally pay the same amount of tax. a. Only statement I is correct. b. Only statement II is correct c. Both statements are correct d. None of the statements are correct. ANSWER: d 66. Sally is an electrician employed by Bogie Company. Sam is a self-employed electrician. During the current year, Sally's salary is $85,000, and Sam's net self-employment income is $85,000. Which of the following statements about the Social Security and self-employment taxes paid is/are correct? I. Sam pays more self-employment tax than what Sally pays in Social Security tax. II. Sam's self-employment tax is equal to the Social Security tax paid on Sally's income. a. Only statement I is correct. b. Only statement II correct. c. Both statements are correct. d. None of the statements are correct. ANSWER: c 67. How much additional Social Security tax does Elise pay in 2021 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $170,000. a. $0 b. $145 c. $620 d. $765 ANSWER: b 68. How much additional Social Security tax does Betty pay in 2021 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $100,000. a. $145.00 b. $269.20 c. $461.20