Appendix 2A—TAXES
MULTIPLE CHOICE
1. Intercompany dividends, or dividends paid by one corporation to another, are normally entitled to
a ____ percent exclusion from Federal income taxes.
a. 15
b. 30
c. 50
d. 70
ANS: D PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Dividend income
2. A corporation's net operating loss may be carried _____ years and _____ years to offset taxable
income in those years.
a. back 20, forward 2
b. back 3, forward 5
c. back 5, forward 15
d. back 2, forward 20
ANS: D PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Knowledge of financial analysis and cash flows
TOP: Loss carrybacks and carryforwards
3. For most large U.S. corporations, the maximum capital gain tax rate is
a. 14%
b. 35%
, c. 50%
d. 28%
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Capital gains income
4. The marginal tax rate for a firm with taxable income of $105,000 is
a. 30%
b. 39%
c. 15%
d. 34%
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Knowledge of financial analysis and cash flows TOP: Corporate income taxes
5. Capital losses are
a. taxed at the same marginal rate as ordinary income
b. taxed at the 20% rate
c. deductible only against capital gains
d. used to reduce interest payments
ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Capital gains income
6. From a tax standpoint, the advantage of an S corporation is that
a. it avoids the double taxation of dividends
b. additional depreciation is allowed
c. it reduces dividend income
, d. interest income is not taxed
ANS: A PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: S corporations
7. __________ received by corporations are normally entitled to a 70 percent exclusion from federal
income taxes.
a. Capital gains income
b. Dividend income
c. Loss carrybacks and carryforwards
d. none of the above
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Dividend income
8. Corporate capital gains income is currently taxed at __________ ordinary income.
a. 80 percent of the marginal tax rate on
b. the same marginal rate as
c. 50 percent of the marginal tax rate on
d. none of the above
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Capital gains income
9. Under the MACRS system of depreciation,
a. there are five classes of assets
b. real estate has a separate class using 150 percent declining balance
c. a half-year convention normally is followed for equipment
, d. all of the above are correct
ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Knowledge of financial analysis and cash flows TOP: Depreciation rate
10. AMX corporation had operating income of $420,000 in 2001; received $12,000 in interest
income; paid $22,000 in interest; received $20,000 in dividends; and paid $50,000 in dividends.
What is the tax liability for AMX?
a. $141,440
b. $146,200
c. $148,920
d. none of the above
ANS: A
Solution:
Operating income $420,000
Interest income 12,000
Interest expense -22,000
Taxable dividends 6,000
Taxable income $416,000
Tax = $113,900 + .34($416,000 - $335,000) = $141,440
PTS: 1 OBJ: TYPE: E. Prob. NAT: Analytic skills
LOC: Knowledge of financial analysis and cash flows TOP: Corporate income tax
11. BET had a taxable income of $135,000 in 2001. What is its tax liability?
a. $22,500
MULTIPLE CHOICE
1. Intercompany dividends, or dividends paid by one corporation to another, are normally entitled to
a ____ percent exclusion from Federal income taxes.
a. 15
b. 30
c. 50
d. 70
ANS: D PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Dividend income
2. A corporation's net operating loss may be carried _____ years and _____ years to offset taxable
income in those years.
a. back 20, forward 2
b. back 3, forward 5
c. back 5, forward 15
d. back 2, forward 20
ANS: D PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Knowledge of financial analysis and cash flows
TOP: Loss carrybacks and carryforwards
3. For most large U.S. corporations, the maximum capital gain tax rate is
a. 14%
b. 35%
, c. 50%
d. 28%
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Capital gains income
4. The marginal tax rate for a firm with taxable income of $105,000 is
a. 30%
b. 39%
c. 15%
d. 34%
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Knowledge of financial analysis and cash flows TOP: Corporate income taxes
5. Capital losses are
a. taxed at the same marginal rate as ordinary income
b. taxed at the 20% rate
c. deductible only against capital gains
d. used to reduce interest payments
ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Capital gains income
6. From a tax standpoint, the advantage of an S corporation is that
a. it avoids the double taxation of dividends
b. additional depreciation is allowed
c. it reduces dividend income
, d. interest income is not taxed
ANS: A PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: S corporations
7. __________ received by corporations are normally entitled to a 70 percent exclusion from federal
income taxes.
a. Capital gains income
b. Dividend income
c. Loss carrybacks and carryforwards
d. none of the above
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Dividend income
8. Corporate capital gains income is currently taxed at __________ ordinary income.
a. 80 percent of the marginal tax rate on
b. the same marginal rate as
c. 50 percent of the marginal tax rate on
d. none of the above
ANS: B PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Understand stocks and bonds TOP: Capital gains income
9. Under the MACRS system of depreciation,
a. there are five classes of assets
b. real estate has a separate class using 150 percent declining balance
c. a half-year convention normally is followed for equipment
, d. all of the above are correct
ANS: C PTS: 1 OBJ: TYPE: Fact NAT: Reflective thinking
LOC: Knowledge of financial analysis and cash flows TOP: Depreciation rate
10. AMX corporation had operating income of $420,000 in 2001; received $12,000 in interest
income; paid $22,000 in interest; received $20,000 in dividends; and paid $50,000 in dividends.
What is the tax liability for AMX?
a. $141,440
b. $146,200
c. $148,920
d. none of the above
ANS: A
Solution:
Operating income $420,000
Interest income 12,000
Interest expense -22,000
Taxable dividends 6,000
Taxable income $416,000
Tax = $113,900 + .34($416,000 - $335,000) = $141,440
PTS: 1 OBJ: TYPE: E. Prob. NAT: Analytic skills
LOC: Knowledge of financial analysis and cash flows TOP: Corporate income tax
11. BET had a taxable income of $135,000 in 2001. What is its tax liability?
a. $22,500
