ACC 555 Week 5 Midterm Exam – Strayer NEW

ACC 555 Week 5 Midterm Exam – Strayer NEW

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Chapters 1 Through 6

Chapter 1 An Introduction to Taxation

1) The federal income tax is the dominant form of taxation by the federal government.

2) The Sixteenth Amendment permits the passage of a federal income tax.

3) When a change in the tax law is deemed necessary by Congress, the entire Internal Revenue Code must be revised.

4) The largest source of federal revenues is the corporate income tax.
Answer:  FALSE

5) A progressive tax rate structure is one where the rate of tax increases as the tax base increases.

6) The terms "progressive tax" and "flat tax" are synonymous.
Answer:  FALSE

7) A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.

8) Regressive tax rates decrease as the tax base increases.

9) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.

10) A taxpayer's average tax rate is the tax rate applied to an incremental amount of taxable income that is added to the tax base.

11) If a taxpayer's total tax liability is $30,000, taxable income is $100,000, and economic income is $120,000, the average tax rate is 30 percent.

12) If a taxpayer's total tax liability is $4,000, taxable income is $20,000, and total economic income is $40,000, then the effective tax rate is 20 percent.

13) All states impose a state income tax which is generally based on an individual's federal adjusted gross income (AGI) with minor adjustments.

14) The unified transfer tax system, comprised of the gift and estate taxes, is based upon the total property transfers an individual makes during lifetime and at death.

15) Gifts between spouses are generally exempt from transfer taxes.

16) The primary liability for payment of the gift tax is imposed upon the donee.

17) For gift tax purposes, a $14,000 annual exclusion per donee is permitted.

18)  An individual will be subject to gift tax on gifts made to a charity

19) Property is generally included on an estate tax return at its historical cost basis.

20) Property transferred to the decedent's spouse is exempt from the estate tax because of the estate tax marital deduction provision.

21) Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's estate.


22) While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature, property taxes are proportional.

23) Adam Smith's canons of taxation are equity, certainty, convenience and economy.

24) The primary objective of the federal income tax law is to achieve various economic and social policy objectives.

25) Individuals are the principal taxpaying entities in the federal income tax system.

26) The various entities in the federal income tax system may be classified into two general categories, taxpaying entities (such as individuals and C [regular] corporations) and flow-through entities such as sole proprietorships, partnerships, S corporations, and limited liability companies.

27) Dividends paid from most U.S. corporations are taxed at the same rate as the recipients' salaries and wages.

28) Flow-through entities do not have to file tax returns since they are not taxable entities.

29) S Corporations result in a single level of taxation.

30) In a limited liability partnership, a partner is not liable for his partner's acts of negligence or misconduct.

31) Limited liability companies may elect to be taxed as corporations.

32) Limited liability company members (owners) are responsible for the liabilities of their limited liability company.

33) The tax law encompasses administrative and judicial interpretations, such as Treasury regulations, revenue rulings, revenue procedures, and court decisions, as well as statutes.

34) Generally, tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.


35) The Internal Revenue Service is the branch of the Treasury Department responsible for administering the federal tax law.

36) Generally, the statute of limitations is three years from the later of the date the tax return is filed or the due date.

37) The largest source of revenues for the federal government comes from
A) individual income taxes.
B) corporate income taxes.
C) Social Security and Medicare taxes (FICA).
D) estate and gift taxes.

38) Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a
A) progressive tax.
B) proportional tax.
C) regressive tax.
D) None of the above.

39) Which of the following taxes is progressive?
A) sales tax
B) excise tax
C) property tax
D) federal income tax


40) Which of the following taxes is proportional?
A) gift tax
B) income tax
C) sales tax
D) Federal Insurance Contributions Act (FICA)

41) Which of the following taxes is regressive?
A) Federal Insurance Contributions Act (FICA)
B) excise tax
C) property tax
D) gift tax

42) Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah's contribution costs
A) $6,250.
B) $8,750.
C) $16,250.
D) $18,750.

43) Helen, who is single, is considering purchasing a residence that will provide a $28,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 25% and her effective tax rate is 20%, what is the amount of Helen's tax savings from purchasing the residence?
A) $5,600
B) $7,000
C) $21,000
D) $22,400


44) Charlotte pays $16,000 in tax deductible property taxes. Charlotte's marginal tax rate is 28%, effective tax rate is 22% and average rate is 25%. Charlotte's tax savings from paying the property tax is
A) $3,520.
B) $4,000.
C) $4,480.
D) $11,520.

45) Anne, who is single, has taxable income for the current year of $38,000 while total economic income is $43,000 resulting in a total tax of $5,356. Anne's average tax rate and effective tax rate are, respectively,
A) 14.09% and 12.46%.
B) 12.46% and 14.09%.
C) 14.09% and 25%.
D) 12.46% and 25%.

46) The unified transfer tax system
A) imposes a single tax upon transfers of property during an individual's lifetime only.
B) imposes a single tax upon transfers of property during an individual's life and at death.
C) imposes a single tax upon transfers of property only at an individual's death.
D) none of above.

47) When property is transferred, the gift tax is based on
A) replacement cost of the transferred property.
B) fair market value on the date of transfer.
C) the transferor's original cost of the transferred property.
D) the transferor's depreciated cost of the transferred property.


48) Paul makes the following property transfers in the current year:
• $22,000 cash to his wife
• $34,000 cash to a qualified charity
• $220,000 house to his son
• $3,000 computer to an unrelated friend

The total of Paul's taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the unified transfer tax is
A) $206,000.
B) $214,000.
C) $234,000.
D) $279,000.

49) Charlie makes the following gifts in the current year: $40,000 to his spouse, $30,000 to his church, $18,000 to his nephew, and $25,000 to a friend. Assuming Charlie does not elect gift splitting with his wife, his taxable gifts in the current year will be
A) $13,000.
B) $15,000.
C) $25,000.
D) $41,000.

50) Shaquille buys new cars for five of his friends. Each car cost $70,000. What is the amount of Shaquille's taxable gifts?
A) $0
B) $280,000
C) $336,000
D) $350,000


51) In 2014, an estate is not taxable unless the sum of the taxable estate and taxable gifts made after 1976 exceeds
A) $1,000,000.
B) $3,500,000.
C) $5,000,000.
D) $5,340,000.

52) Eric dies in the current year and has a gross estate valued at $6,500,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Eric's debts which amount to $250,000. Eric bequeaths $600,000 to his wife. Eric made no taxable transfers during his life. Eric's taxable estate will be
A) $210,000.
B) $5,550,000.
C) $6,150,000.
D) $6,500,000.

53) Thomas dies in the current year and has a gross estate valued at $3,000,000. During his lifetime (but after 1976) Thomas had made taxable gifts of $400,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Thomas' debts which amount to $300,000. Thomas bequeaths $500,000 to his wife. What is the amount of Thomas' tax base, the amount on which the estate tax is computed?
A) $2,100,000
B) $2,500,000
C) $2,600,000
D) $3,400,000

54) Which of the following statements is incorrect?
A) Property taxes are levied on real estate.
B) Excise taxes are assessed on items such as gasoline and telephone use.
C) Gift taxes are imposed on the recipient of a gift.
D) The estate tax is based on the fair market value of property at death or the alternate valuation date.


55) Denzel earns $130,000 in 2014 through his job as a sales manager. What is his FICA tax?
A) $9,139
B) $8,951
C) $8,698
D) $9,945
Answer:  A

56) Jillian, a single individual, earns $230,000 in 2014 through her job as an accounting manager. What is her FICA tax?
A) $10,859
B) $17,595
C) $10,589
D) $8,951

57) Martha is self-employed in 2014. Her business profits are $140,000. What is her self-employment tax?
A) $21,420
B) $18,568
C) $18,159
D) None of the above.

58) Which of the following is not one of Adam Smith's canons of taxation?
A) equity
B) convenience
C) certainty
D) paid by all citizens


59) Horizontal equity means that
A) taxpayers with the same amount of income pay the same amount of tax.
B) taxpayers with larger amounts of income should pay more tax than taxpayer's with lower amounts of income.
C) all taxpayers should pay the same tax.
D) none of the above.

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