(Test Bank) University Of Nevada, Las Vegas Acc 602 Introduction To Taxation

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1. Chapter 1 - Introduction To Taxation Question TF #1 The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase. a. True *b. False 2. Chapter 1 - Introduction To Taxation Question TF #2 The Federal estate and gift taxes are examples of progressive taxes. *a. True b. False 3. Chapter 1 - Introduction To Taxation Question TF #3 The Federal excise tax on cigarettes is an example of a proportional tax. *a. True b. False 4. Chapter 1 - Introduction To Taxation Question TF #4 Currently, the Federal income tax is more progressive than it ever has been in the past. a. True *b. False 5. Chapter 1 - Introduction To Taxation Question TF #5 Federal excise tax is no longer imposed on jewelry. *a. True b. False 6. Chapter 1 - Introduction To Taxation Question TF #6 The tax on hotel occupancy is subject to both Federal and state excise taxes. a. True *b. False 7. Chapter 1 - Introduction To Taxation Question TF #7 The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S. a. True *b. False 8. Chapter 1 - Introduction To Taxation Question TF #8 Like the Federal counterpart, the amount of the state excise taxes on gasoline do not vary from state to state. a. True *b. False 9. Chapter 1 - Introduction To Taxation Question TF #9 The states that impose a general sales tax also have a use tax. *a. True b. False 10. Chapter 1 - Introduction To Taxation Question TF #10 Sales made by mail order are not exempt from the application of a general sales (or use) tax. *a. True b. False 11. Chapter 1 - Introduction To Taxation Question TF #11 Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate. *a. True b. False 12. Chapter 1 - Introduction To Taxation Question TF #12 States impose either a state income tax or a general sales tax, but not both types of taxes. a. True *b. False 13. Chapter 1 - Introduction To Taxation Question TF #13 A safe and easy way for a taxpayer to avoid local and state sales taxes is to have the purchase sent to an address in another state that levies no such taxes. a. True *b. False 14. Chapter 1 - Introduction To Taxation Question TF #14 The principal objective of the FICA tax is to provide some measure of retirement security. *a. True b. False 15. Chapter 1 - Introduction To Taxation Question TF #15 Currently, the tax base for the Medicare component of the FICA is not limited to a dollar amount. *a. True b. False 16. Chapter 1 - Introduction To Taxation Question TF #16 A parent employs his twin daughters, age 19, in his sole proprietorship. The daughters are not subject to FICA coverage. a. True *b. False 17. Chapter 1 - Introduction To Taxation Question TF #17 Unlike FICA, FUTA requires that employers comply with state as well as Federal rules. *a. True b. False 18. Chapter 1 - Introduction To Taxation Question TF #18 On transfers by death, the Federal government relies on an estate tax, while states use only an inheritance tax. a. True *b. False 19. Chapter 1 - Introduction To Taxation Question TF #19 An inheritance tax is a tax on a decedent’s right to pass property at death. a. True *b. False 20. Chapter 1 - Introduction To Taxation Question TF #20 One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit. *a. True b. False 21. Chapter 1 - Introduction To Taxation Question TF #21 Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be due on Clint’s death in 2011. *a. True b. False 22. Chapter 1 - Introduction To Taxation Question TF #22 Under a state inheritance tax, two heirs, a cousin and a son of the deceased, would be taxed at the same rate. a. True *b. False 23. Chapter 1 - Introduction To Taxation Question TF #23 The annual exclusion, currently $13,000, is available for gift but not estate tax purposes. *a. True b. False 24. Chapter 1 - Introduction To Taxation Question TF #24 In 2011, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has made a taxable gift of $37,000. *a. True b. False 25. Chapter 1 - Introduction To Taxation Question TF #25 Julius, a married taxpayer, makes gifts to each of his six children. A maximum of six annual exclusions could be allowed as to these gifts. a. True *b. False 26. Chapter 1 - Introduction To Taxation Question TF #26 One of the motivations for making a gift is to save on income taxes. *a. True b. False 27. Chapter 1 - Introduction To Taxation Question TF #27 Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These changes should affect the amount of ad valorem property taxes levied on the properties. *a. True b. False 28. Chapter 1 - Introduction To Taxation Question TF #28 A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty . a. True *b. False 29. Chapter 1 - Introduction To Taxation Question TF #29 Even if property tax rates are not changed, the ad valorem taxes imposed on realty may not remain the same. *a. True b. False 30. Chapter 1 - Introduction To Taxation Question TF #30 The ad valorem tax on business use personalty is more often avoided by taxpayers than the ad valorem tax on personal use personalty. a. True *b. False 31. Chapter 1 - Introduction To Taxation Question TF #31 The formula for the Federal income tax on corporations is not the same as that applicable to individuals. *a. True b. False 32. Chapter 1 - Introduction To Taxation Question TF #32 Olga’s proprietorship earned a net profit of $95,000 during the year and she withdrew $70,000 of this profit. Olga must report $70,000 net income from the proprietorship on her individual income tax return (Form 1040). a. True *b. False 33. Chapter 1 - Introdu ction To Taxation Question TF #33 Rose is a 50% partner in Wren Partnership. During the year, Wren earned net profit of $100,000 ($210,000 gross income – $110,000 operating expenses) and distributed $20,000 to each partner. Rose must report Wren Partnership profit of $20,000 on her Federal income tax return. a. True *b. False 34. Chapter 1 - Introduction To Taxation Question TF #34 Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return. *a. True b. False 35. Chapter 1 - Introduction To Taxation Question TF #35 Donald owns a 60% interest in a partnership that earned $230,000 in the current year. He also owns 60% of the stock in a C corporation that earned $230,000 during the year. Donald receive d $50,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $188,000 of income on his individual income tax return for the year. *a. True b. False 36. Chapter 1 - Introduction To Taxation Question TF #36 Quail Corporation is a C corporation with net income of $300,000 during 2011. If Quail paid dividends of $50,000 to its shareholders, the corporation must pay tax on $300,000 of net income. Shareholders must report the $50,000 of dividends as income. *a. True b. False 37. Chapter 1 - Introduction To Taxation Question TF #37 Eagle Company, a partnership, had a short -term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle’s short -term capital loss on his individual tax return. *a. True b. False 38. Chapter 1 - Introduction To Taxation Question TF #38 Katherine, the sole shareholder of Purple Corporation, a calendar year C corporation, has the corporation pay her a salary of $450,000 in the current year. The Tax Court has held that $150,000 represents unreasonable compensation. Purple Corporation’s taxable income is unaffected by the Tax Court’ s determination. a. True *b. False 39. Chapter 1 - Introduction To Taxation Question TF #39 Double taxation of corporate income results because dividend distributions are included in a shareholder’s gross income but are not deductible by the corporation. *a. True b. False 40. Chapter 1 - Introduction To Taxation Question TF #40 Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as salary instead of dividend. a. True *b. False 41. Chapter 1 - Introduction To Taxation Question TF #41 When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved. a. True *b. False 42. Chapter 1 - Introduction To Taxation Question TF #42 A tax cut enacted by Congress that contains a sunset provision will make the tax cut permanent. a. True *b. False 43. Chapter 1 - Introduction To Taxation Question TF #43 The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and social grounds. *a. True b. False 44. Chapter 1 - Introduction To Taxation Question TF #44 Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and equity grounds. a. True *b. False 45. Chapter 1 - Introduction To Taxation Question TF #45 To lessen, or eliminate, the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid. *a. True b. False 46. Chapter 1 - Introduction To Taxation Question TF #46 To mitigate the effect of the annual accounting period concept, the tax law permits the carryback and carryforward to other years of the net operating loss of a particular year. *a. True b. False 47. Chapter 1 - Introduction To Taxation Question TF #47 Jason’s business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept. *a. True b. False 48. Chapter 1 - Introduction To Taxation Question TF #48 Congress has enacted a provision to allow a deduction for state and local sales taxes. Such a provision can be justified on social grounds. a. True *b. False 49. Chapter 1 - Introduction To Taxation Question TF #49 As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale took place. a. True *b. False 50. Chapter 1 - Introduction To Taxation Question TF #50 A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles. a. True *b. False 51. Chapter 1 - Introduction To Taxation Question TF #51 As a matter of administrative convenience, the IRS would prefer to have Congress increase (rather than decrease) the amount of the standard deduction allowed to individual taxpayers. *a. True b. False 52. Chapter 1 - Introduction To Taxation Question MC #1 Federal excise taxes that are no longer imposed include: a. Tax on air travel. b. Tax on wagering. c. Tax on the manufacture of sporting equipment. *d. Tax on jewelry. e. None of the above. 53. Chapter 1 - Introduction To Taxation Question MC #2 Taxes not imposed by the Federal government include: a. Tobacco excise tax. *b. Car rental tax. c. Customs duties (tariffs on imports). d. Gas guzzler tax. e. None of the above. 54. Chapter 1 - Introduction To Taxation Question MC #3 Taxes levied by both states and the Federal government include: a. General sales tax. b. Custom duties. c. Hotel occupancy tax. d. Franchise tax. *e. None of the above. 55. Chapter 1 - Introduction To Taxation Question MC #4 Taxes levied by all states include: *a. Liquor excise tax. b. Individual income tax. c. Inheritance tax. d. General sales tax. e. None of the above. 56. Chapter 1 - Introduction To Taxation Question MC #5 A use tax is imposed by: a. The Federal government and all states. b. The Federal government and a majority of the states. c. All states and not the Federal government. *d. Most of the states and not the Federal government. e. None of the above. 57. Chapter 1 - Introduction To Taxation Question MC #6 A characteristic of FICA is that: *a. It applies when one spouse works for the other spouse. b. It is imposed only on the employer. c. It provides a modest source of income in the event of loss of employment. d. It is administered by both state and Federal governments. e. None of the above. 58. Chapter 1 - Introduction To Taxation Question MC #7 A characteristic of FUTA is that: a. It is imposed on both employer and employee. b. It is imposed solely on the employee. *c. Compliance requires following guidelines issued by both state and Federal regulatory authorities. d. It is applicable to spouses of employees but not to any children under age 18. e. None of the above. 59. Chapter 1 - Introduction To Taxation Question MC #8 Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their five children in 2011. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $0. b. $13,000. c. $26,000. d. $65,000. *e. $130,000. 60. Chapter 1 - Introduction To Taxation Question MC #9 Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: *a. To take advantage of the per donee annual exclusion. b. To avoid a future decline in value of the property transferred. c. To take advantage of the higher unified transfer tax credit available under the gift tax. d. To shift income to higher bracket donees. e. None of the above. 61. Chapter 1 - Introduction To Taxation Question MC #10 Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax imposed on real estate? a. A resident dies and leaves his farm to his church. b. A large property owner issues a conservation easement as to some of her land. *c. A tax holiday issued 10 years ago has expired. d. A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. e. None of the above. 62. Chapter 1 - Introduction To Taxation Question MC #11 Which, if any, of the following transactions will decrease a taxing jurisdiction’s ad valorem tax revenue imposed on real estate? a. A tax holiday is denied to an out-of-state business that is searching for a new factory site. b. An abandoned church is converted to a restaurant. c. A public school is razed and turned into a city park. *d. A local university buys an apartment building for use as a student dormitory. e. None of the above. 63. Chapter 1 - Introduction To Taxation Question MC #12 Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty? a. Taxpayer compliance is greater for personal use property than for business use property. *b. The tax on automobiles sometimes considers the age of the vehicle. c. Most states impose a tax on intangibles. d. The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid. e. None of the above. 64. Chapter 1 - Introduction To Taxation Question MC #13 Indicate which, if any, statement is incorrect . State income taxes: a. Can piggyback to the Federal version. b. Can decouple from the Federal version. c. Can apply to visiting nonresidents. d. Can provide occasional amnesty programs. *e. None of the above. 65. Chapter 1 - Introduction To Taxation Question MC #14 State income taxes generally can be characterized by: a. A different date for filing than the Federal income tax. *b. Provision for withholding procedures. c. Allowance of a deduction for Federal income taxes paid. d. Applying only to individuals and not applying to corporations. e. None of the above. 66. Chapter 1 - Introduction To Taxation Question MC #15 Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2011. Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year. The corporation distributed $20,000 to Juanita, and the partnership distributed $20,000 to Carlos. Which of the following statements relating to 2011 is incorrect ? a. Juanita must report $20,000 of income from the corporation. b. The corporation must pay corporate tax on $120,000 of income. *c. Carlos must report $20,000 of income from the partnership. d. The partnership is not subject to a Federal entity -level income tax. e. None of the above. 67. Chapter 1 - Introduction To Taxation Question MC #16 Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2011. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses? a. $0 income from the S corporation and $30,000 income from the C corporation. *b. $90,000 income from the S corporation and $30,000 income from the C corporation. c. $90,000 income from the S corporation and $0 income from the C corporation. d. $30,000 income from the S corporation and $30,000 of dividend income from the C corporation. e. None of the above. 68. Chapter 1 - Introduction To Taxation Question MC #17 Luis is the sole shareholder of a C corporation, and Eduardo owns a sole proprietorship. Both businesses were started in 2011, and each business has a long-term capital gain of $20,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is incorrect ? a. Eduardo must report a $20,000 long-term capital gain on his 2011 tax return. b. Louis’s corporation does not receive a preferential tax rate on the $20,000 long-term capital gain. *c. Luis must report a $20,000 long-term capital gain on his 2011 tax return. d. Eduardo receives a preferential tax rate on a long-term capital gain of $20,000. e. None of the above. 69. Chapter 1 - Introduction To Taxation Question MC #18 Norma formed Hyacinth Enterprises, a proprietorship, in 2011. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a lon g-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2011? a. Increases Norma’s taxable income by $75,000. b. Increases Norma’s taxable income by $160,000. c. Increases Norma’s taxable income by $150,000 ($160,000 ordinary business income – $10,000 long-term capital loss). *d. Increases Norma’s taxable income by $157,000 ($160,000 ordinary business income – $3,000 long-term capital loss). e. None of the above. 70. Chapter 1 - Introduction To Taxation Question MC #19 Francisco is the sole owner of Rose Company. For 2011, the only income of Rose was a long -term capital gain of $25,000. The business made no distributions during the year to Francisco. Irrespective of Rose Company, Francisco’s marginal tax rate is 35% and he has no capital asset transactions. Which of the following statements is incorrect ? a. If Rose Company is a sole proprietorship or S corporation, Francisco must report the $25,000 long-term capital gain on his personal income tax return. b. If Rose Company is a C corporation, Francisco will report none of the $25,000 long -term capital gain on his personal income tax return. c. If Rose Company is a sole proprietorship or S corporation, a preferential tax rate applies to the $25,000 long -term capital gain. d. If Rose Company is a C corporation, a preferential tax rate does not apply to the $25,000 long-term capital gain. *e. None of the above. 71. Chapter 1 - Introduction To Taxation Question MC #20 Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enter prises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael. a. Trout pays tax on $0 income, Glen’s taxable income increases by $60,000, and Michael’s taxable income increases by $60,000. b. Trout pays tax on $280,000 income, Glen’s taxable income increases by $60,000, and Michael’s taxable income increases by $60,000. c. Trout pays tax on $0 income, Glen’s taxable income increases by $200,000, and Michael’s taxable income increases by $200,000. *d. Trout pays tax on $0 income, Glen’s taxable income increases by $140,000, and Michael’s taxable income increases by $140,000. e. None of the above. 72. Chapter 1 - Introduction To Taxation Question MC #21 Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the year. In addition, Elk has a $10,000 long-term capital gain and a $17,000 short -term capital loss. Elk’s taxable income is: a. $90,000. *b. $80,000. c. $73,000. d. $63,000. e. None of the above. 73. Chapter 1 - Introduction To Taxation Question MC #22 Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $200,000 net profit and paid a dividend of $40,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 28% marginal tax bracket and Pasqual is in the 35% marginal tax bracket. With respect to the current year, which of the following statements is incorrect ? *a. Flycatcher can avoid the corporate tax altogether by paying out all $200,000 of net profit as dividends to the shareholders. b. Nancy incurs income tax of $6,000 on her dividend income. c. Pasqual incurs income tax of $6,000 on his dividend income. d. Flycatcher pays corporate tax on $200,000. e. None of the above. 74. Chapter 1 - Introduction To Taxation Question MC #23 Which of the following statements is incorrect about LLCs and the check -the-box Regulations? a. A limited liability company with one owner can elect to be taxed as a corporation. b. All 50 states have passed laws that allow LLCs. c. An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. d. If a limited liability company with one owner does not make an election, the entity is taxed as a sole proprietorship. *e. If a limited liability company with more than one owner does not make an election, the entity is taxed as a corporation. 75. Chapter 1 - Introduction To Taxation Question MC #24 Both economic and social considerations can be used to justify: *a. Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. b. Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). c. Favorable tax treatment for accident and health plans provided for empl oyees and financed by employers. d. Allowance of a deduction for state and local income taxes paid. e. None of the above. 76. Chapter 1 - Introduction To Taxation Question MC #25 Social considerations can be used to justify: a. Allowing a Federal income tax deduction for state and local sales taxes. b. Allowing excess capital losses to be carried over to other years. c. Allowing accelerated amortization for the cost of installing pollution control facilities. *d. Allowance of a credit for child care expenses. e. None of the above. 77. Chapter 1 - Introduction To Taxation Question MC #26 Allowing a domestic production activities deduction for certain manufacturing income can be justified: a. As mitigating the effect of the annual accounting period concept. b. As promoting administrative feasibility. *c. By economic considerations. d. Based on the wherewithal to pay concept. e. None of the above. 78. Chapter 1 - Introduction To Taxation Question MC #27 Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by: a. Political considerations. *b. Economic and social considerations. c. Promoting administrative feasibility. d. Encouragement of small business. e. None of the above.