Federal Income Taxation: An Overview

?Chapter 1—Federal Income Taxation - An Overview MATCHING Match each term with the correct statement below. a. Average tax rate b. Effective tax rate c. Horizontal equity d. Marginal tax rate e. Progressive rate structure f. Proportional rate structure g. Regressive rate structure h. Tax avoidance i. Tax evasion j. Vertical equity 1. A tax rate that increases as the tax base increases. 2. A tax rate that decreases as the tax base increases. 3. Fraudulent methods are used to reduce the actual tax liability. 4. A tax rate that remains the same at all levels of the tax base. 5.

Tax planning using legal methods to minimize the tax liability. 6. The tax rate that will apply to the next dollar of taxable income. 7. The tax rate obtained by dividing total tax liability by taxable income. 8. The tax rate obtained by dividing total tax liability by economic income. 9. The result when two similarly situated taxpayers are taxed the same. 10. The result when two differently situated taxpayers are taxed differently but fairly. 1. ANS:EPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 2. ANS:GPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 3. ANS:IPTS:1DIF:Easy.

NAT:AICPA Measurement | AACSB Analytic 4. ANS:FPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 5. ANS:HPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 6. ANS:DPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 7. ANS:APTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 8. ANS:BPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 9. ANS:CPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 10. ANS:JPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic Match each term with the correct statement below. a. Ad valorem tax b. Deduction c. Excise tax d. Exclusion e. Expense f. Gain g. Loss h.

Ordinary income i. Pay-as-you-go concept j. Personal property k. Real property l. Self-assessment m. Standard deduction n. Statute of limitations o. Tax base p. Tax credit 11. Any asset that is not real estate. 12. Based on a quantity of a product sold. 13. Based on the value of the property being taxed. 14. The value or amount that is subject to taxation. 15. The excess of an asset’s tax basis over its selling price. 16. Land and any structures permanently attached to the land. 17. The excess of the selling price of an asset over its tax basis. 18. Used by persons who do not itemize deductions on their return.

19. Subtractions from gross income specifically allowed by the tax law. 20. Current period expenditure incurred in order to earn income. 21. The payment of tax throughout the year as income is earned. 22. The common, customary, recurring type of income earned by taxpayers. 23. A taxpayer is responsible for determining his/her tax liability and timely paying the tax due. 24. Direct reduction in the income tax liability often created by Congress to further a public purpose. 25. The period of time during which a taxpayer and/or the IRS can correct a taxpayer’s taxable income. 26.

Increases in wealth and recoveries of capital that Congress has decided should not be subject to income tax. 11. ANS:JPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 12. ANS:CPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 13. ANS:APTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 14. ANS:OPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 15. ANS:GPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 16. ANS:KPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 17. ANS:FPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 18. ANS:MPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic

19. ANS:BPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 20. ANS:EPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 21. ANS:IPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 22. ANS:HPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 23. ANS:LPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 24. ANS:PPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 25. ANS:NPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic 26. ANS:DPTS:1DIF:Easy NAT:AICPA Measurement | AACSB Analytic TRUE/FALSE 1. A tax is an enforced contribution used to finance the functions of government.

ANS:TPTS:1DIF:EasyOBJ:1 NAT:AICPA Measurement | AACSB Analytic 2. Adam Smith identified efficient, certainty, convenience, and economy as the four basic requirements for a good tax system. ANS:FPTS:1DIF:EasyOBJ:1 NAT:AICPA Measurement | AACSB Analytic 3. Congress is required to insure that the tax law has the following characteristics: equality, certainty, convenience, and economy. ANS:FPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 4. Horizontal equity exists when two similarly situated taxpayers are taxed the same. ANS:TPTS:1DIF:EasyOBJ:1 NAT:AICPA Measurement | AACSB Analytic 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. ANS:TPTS:1DIF:EasyOBJ:1 NAT:AICPA Measurement | AACSB Analytic 6. A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases. ANS:TPTS:1DIF:EasyOBJ:1 NAT:AICPA Measurement | AACSB Analytic 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. ANS:FPTS:1DIF:MediumOBJ:2.

NAT:AICPA Measurement | AACSB Analytic 8. A deferral is like an exclusion in that it does not have a current tax effect, but it differs in that an exclusion is never subject to taxation, whereas a deferral will be subject to tax at some point of time in the future. ANS:TPTS:1DIF:MediumOBJ:4 NAT:AICPA Measurement | AACSB Analytic 9. An annual loss results from an excess of allowable deductions for a tax year over the reported income. ANS:TPTS:1DIF:EasyOBJ:6 NAT:AICPA Measurement | AACSB Analytic 10. Self-employed people are required to make quarterly payments of their estimated tax liability. ANS:TPTS:1DIF:MediumOBJ:6.

NAT:AICPA Measurement | AACSB Analytic 11. The statute of limitations is three years, six years if the taxpayer omits gross income in excess of 25%, and there is no statute of limitations if the taxpayer willfully defrauds the government. ANS:TPTS:1DIF:MediumOBJ:5 NAT:AICPA Measurement | AACSB Analytic 12. Gifts to qualified charitable organizations may be deducted as a contribution, but not to exceed 50% of an individual taxpayer’s adjusted gross income. ANS:TPTS:1DIF:MediumOBJ:6 NAT:AICPA Measurement | AACSB Analytic 13. Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability.

ANS:FPTS:1DIF:MediumOBJ:8 NAT:AICPA Measurement | AACSB Analytic 14. All tax practitioners are governed by the AICPA’s Code of Professional Conduct. ANS:FPTS:1DIF:MediumOBJ:9 NAT:AICPA Measurement | AACSB Analytic 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. ANS:TPTS:1DIF:MediumOBJ:9 NAT:AICPA Measurement | AACSB Analytic MULTIPLE CHOICE 1. 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 the public or governmental purposes. ANS:BPTS:1DIF:EasyOBJ:1 NAT:AICPA Measurement | AACSB Analytic 2. 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 upon the amount of income tax already calculated. ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 3. 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. 2% 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. ANS:EPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 4. 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 will pick up the bags. e. All of the above meet the definition of a tax. ANS:APTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 5. 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 to the County Treasurer's Office for an assessment on his business equipment. 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. ANS:APTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 6. Which of the following payments meets the IRS definition of a tax? a. Sewer fee charged added to a city trash collection bill. b. A special assessment paid to the county to pave a street. 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 based on the weight of the auto.

ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 7. Which of the following statement 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 it’s 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. ANS:CPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 8. 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. ANS:CPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 9.

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. ANS:APTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 10. 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. e. Sufficiency. ANS:CPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic.

11. Pay-as-you-go withholding is consistent with Adam Smith's criteria of a. Certainty. b. Convenience. c. Economy. d. Fairness. e. Transparency. ANS:BPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 12. 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. ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 13. 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. ANS:CPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 14. 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. 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. ANS:BPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 15. 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. ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 16. Jessica is single and has a 2013 taxable income of $199,800. She also received $15,000 of tax-exempt income. Jessica's marginal tax rate is: a. 22. 8% b. 23. 5% c. 25.

0% d. 28. 0% e. 33. 0% ANS:EPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 17. Andrea is single and has a 2013 taxable income of $199,800 She also received $15,000 of tax-exempt income. Andrea's average tax rate is: a. 22. 8% b. 23. 5% c. 25. 1% d. 28. 5% e. 33. 0% ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 18. Maria is single and has a 2013 taxable income of $199,800 She also received $15,000 of tax-exempt income. Maria's effective tax rate is: a. 22. 8% b. 23. 3% c. 25. 3% d. 28. 0% e. 33. 0% ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 19.

Bob and Linda are married and have a 2013 taxable income of $280,000. They also received $20,000 of tax-exempt income. Their marginal tax rate is: a. 23. 1% b. 24. 8% c. 28. 0% d. 33. 0% e. 35. 0% ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 20. Frank and Fran are married and have a 2013 taxable income of $280,000. They also received $20,000 of tax-exempt income. Their average tax rate is: a. 23. 1% b. 24. 5% c. 25. 3% d. 33. 0% e. 35. 0% ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 21. Jim and Anna are married and have a 2013 taxable income of $280,000.

They also received $20,000 of tax-exempt income. Their effective tax rate is: a. 22. 7% b. 22. 9% c. 24. 8% d. 33. 0% e. 35. 0% ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 22. Terry is a worker in the country 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% ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 23. 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. c. Statements II and IV are correct. d. Statements I, II and III are correct. e. Only statement II is correct. ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 24. Jaun plans to give $5,000 to the American Diabetes Association. Jaun's marginal tax rate is 28%. His average tax rate is 25%. Jaun's after-tax cost of the contribution is a. $1,250 b. $1,400 c. $3,600 d. $3,750 e. $5,000 ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 25.

Katie pays $10,000 in tax-deductible property taxes. Katie’s marginal tax rate is 25%, average tax rate is 24%, and effective tax rate is 20%. Katie's tax savings from paying the property tax is: a. $ 1,600 b. $ 2,000 c. $ 2,400 d. $ 2,500 e. $10,000 ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 26. Lee's 2013 taxable income is $88,000 before considering charitable contributions. Lee is a single individual. She makes a donation of $10,000 to the American Heart Association in December 2013. 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% ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 27. Shara's 2013 taxable income is $42,000 before considering charitable contributions. Shara is a single individual. She makes a donation of $5,000 to the American Heart Association in December 2013. 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% ANS:APTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 28. Sally is a single individual. In 2013, she receives $10,000 of tax-exempt income in addition to her salary and other investment income of $100,000.

Sally's 2013 tax return showed the following information: Gross income $ 100,000 Deductions for adjusted gross income ( 4,000) Adjusted gross income $ 96,000 Itemized deductions (16,100) Personal exemption ( 3,900) Taxable income $ 76,000 Total tax $ 14,929 Less: Income tax withheld from wages (14,900) Balance of tax due $ 29 Which of the following statements concerning Sally's tax rates is (are) correct? I. Sally's average tax rate is 19. 6%. II. Sally's average tax rate is 25. 0%. III. Sally's marginal tax rate is 25%. IV. Sally's marginal tax rate is 28%. 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. ANS:APTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 29. Jered and Samantha are married. Their 2013 taxable income is $90,000 before considering their mortgage interest deduction. If the mortgage interest totals $10,000 for 2013, what are the tax savings attributable to their interest deduction? a. $ 1,500 b. $ 2,500 c. $ 2,800 d. $ 3,300 e. $10,000 ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 30. Betty is a single individual.

In 2013, she receives $5,000 of tax-exempt income in addition to her salary and other investment income. Betty's 2013 tax return showed the following information: Gross income $ 90,000 Deductions for adjusted gross income ( 4,000) Adjusted gross income $ 86,000 Itemized deductions (14,600) Personal exemption ( 3,900) Taxable income $ 67,500 Income tax $ 12,804 Less: Income tax withheld from wages (12,800) Balance of tax due $ 4 Which of the following statements concerning Betty's tax rates is (are) correct? I. Betty's average tax rate is 19. 0%. II. Betty's average tax rate is 17. 7%. III. Betty's effective tax rate is 19.

0%. IV. Betty's effective tax rate is 17. 7%. 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. ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 31. Katarina, a single taxpayer, has total income from all sources of $100,000 for 2013. Her taxable income after taking into consideration $25,000 in deductions and $10,000 in exclusions is $65,000. Katarina’s tax liability is $12,179. What are Katarina's marginal, average, and effective tax rates? a. 28% marginal; 18. 7% average; 18. 7% effective. b.

25% marginal; 16. 2% average; 16. 2% effective. c. 25% marginal; 16. 2% average; 18. 7% effective. d. 25% marginal; 18. 7% average; 16. 2% effective. e. 28% marginal; 16. 2% average; 18. 7% effective. ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 32. Alan is a single taxpayer with a gross income of $88,000, a taxable income of $66,000, and an income tax liability of $12,429. Josh also has $8,000 of tax-exempt interest income. What are Alan's marginal, average, and effective tax rates? a. 25% marginal; 16. 8% average; 18. 8% effective. b. 28% marginal; 15. 9% average; 21. 5% effective.

c. 28% marginal; 16. 8% average; 21. 5% effective. d. 25% marginal; 18. 8% average; 16. 8% effective. ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 33. A tax provision has been discussed that would add an additional marginal tax rate of 39% 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. ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic.

34. 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. ANS:DPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 35. Employment taxes are a. revenue neutral. b. regressive . c. value-added. d. progressive. e. proportional. ANS:EPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 36. A state sales tax levied on all goods and services sold is an example of a a. progressive tax. b. regressive tax. c. proportional tax. d. value added tax. ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 37.

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. ANS:DPTS:1DIF:MediumOBJ:1

NAT:AICPA Measurement | AACSB Analytic 38. 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. c. Statements I and IV are correct. d. Statements II and IV are correct. e. Statements I, II, and IV are correct.

ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 39. Taxpayer A pays tax of $3,300 on taxable income of $10,000 while taxpayer B pays tax of $6,600 on $20,000. The tax is a a. proportional tax. b. regressive tax. c. progressive tax. d. horizontal tax. ANS:APTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 40. 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. ANS:CPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 41. 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 statements III is correct. d. Statements I and IV are correct. e. Statements III and IV are correct. ANS:EPTS:1DIF:DifficultOBJ:1 NAT:AICPA Measurement | AACSB Analytic 42.

Oliver pays sales tax of $7. 20 on the purchase of a lamp for $120. Michelle paid 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 based on taxable income. II. The structure of the sales tax is proportional if based on sales price. III. The structure of the sales tax is progressive based on taxable income. IV. The average sales tax paid on a purchase 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. ANS:EPTS:1DIF:DifficultOBJ:1 NAT:AICPA Measurement | AACSB Analytic 43. Greg pays sales tax of $7. 20 on the purchase of a lamp for $120. Michelle paid 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 based on taxable income. II. The structure of the sales tax is proportional if based on sales price. a. Only statement I is correct.

b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. ANS:BPTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 44. Heidi and Anastasia are residents of the mythical country of Wetland. Heidi pays $1,500 income tax on taxable income of $6,000. Anastasia pays income tax of $21,000 on 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. ANS:APTS:1DIF:MediumOBJ:1 NAT:AICPA Measurement | AACSB Analytic 45. Elrod is an employee of Gomez Inc. During 2013, 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 b. $7,803. 40 c. $8,422. 65 d. $8,789. 40 e. $9,180. 00 ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 46. Marie earns $80,000 as a sales manager for Household Books. How much Social Security and medicare tax does Marie have to pay? a. $ 4,960. 00 b. $ 6,120. 00 c.

$ 6,400. 00 d. $12,240. 00 ANS:BPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 47. Samantha is a self-employed electrician. During 2013, her net self-employment income is $120,000. What is Samantha's self-employment tax? a. $15,570. 00 b. $15,606. 80 c. $16,845. 30 d. $17,578. 80 e. $18,360. 00 ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 48. 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 ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 49. 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 greater than the Social Security tax paid on Phyllis's income. II. Phil pays more self-employment tax than Phyllis pays in Social Security tax. 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 I is correct. c. Only statement IV is correct. d. Statements I and III are correct. e. Statements II and IV are correct. ANS:EPTS:1DIF:DifficultOBJ:2 NAT:AICPA Measurement | AACSB Analytic 50. 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. Neither statement is correct ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 51. 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 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. Neither statement is correct. ANS:CPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 52. How much additional Social Security tax does Elise pay in 2013 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $130,000. a. $ 0 b. $ 145 c. $ 620 d. $ 765 ANS:BPTS:1DIF:MediumOBJ:2.

NAT:AICPA Measurement | AACSB Analytic 53. How much additional Social Security tax does Betty pay in 2013 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 d. $641. 00 e. $765. 00 ANS:EPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 54. How much additional Social Security tax does Connie pay in 2013 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $42,000. a. $ 0 b. $145. 00 c. $620. 00 d. $765. 00 ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 55.

Which of the following types of taxes rely solely on "income" as the tax base for determining the amount of tax liability? I. Sales Tax II. Property Tax III. Gift Tax IV. Social Security Tax V. Excise Tax a. Statements I, II, III, IV, and V are correct. b. Statements I, III, and IV are correct. c. Statements II and IV are correct. d. Only statement IV is correct. e. None of the above types of taxes relies on income for its tax base. ANS:DPTS:1DIF:MediumOBJ:2 NAT:AICPA Measurement | AACSB Analytic 56. A property tax I. is levied on the value of property. II. is referred to as ad valorem. III. on personal pro.

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