Tax Test 1 Problems
Marlon and Latoya recently started building a house. They had to pay $300 to the
county government for a building permit. Is the $300 payment a tax? Why or why not? -
Answer fee
The city of Birmingham recently enacted a 1 percent surcharge on hotel rooms that will
help pay for the city's new stadium. Is this a tax? Why or why not? - Answer tax
(earmarked)
Arnold and Lilly have recently had a heated discussion about whether a sales tax is a
proportional tax or a regressive tax. Lilly argues that a sales tax is regressive. Arnold
counters that the sales tax is a flat tax. Who is correct? - Answer both
Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from
an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much
federal tax will he owe? What is his average tax rate? What is his effective tax rate?
What is his current marginal tax rate? - Answer 14606.25
Using the facts in the previous problem, if Chuck earns an additional $40,000 of taxable
income, what is his marginal tax rate on this income? What is his marginal rate if,
instead, he had $40,000 of additional deductions? - Answer 26.92
24.53
Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest.
Alternatively, Melinda could have invested the $200,000 in a bond recently issued by
Surething, Inc. that pays 8 percent interest with similar risk and other nontax
characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 25
percent.
What is her after-tax rate of return for the City of Heflin bond? - Answer 6%
Hugh has the choice between investing in a City of Heflin bond at 6 percent or a
Surething bond at 9 percent. Assuming that both bonds have the same nontax
characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should
he invest? - Answer city
Using the facts in the previous problem, what interest rate does Surething, Inc., need to
offer to make Hugh indifferent between investing in the two bonds? - Answer 10.1% he
would take corp
Song earns $100,000 taxable income as an interior designer and is taxed at an average
rate of 20 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such
that Song's average tax rate increases from 20 percent to 25 percent, how much more
income tax will she pay assuming that the income effect is descriptive? What effect will
this tax rate change have on the tax base and tax collected? - Answer 66666.67 more
taxes paid
, Tax Test 1 Problems
Benita is concerned that she will not be able to complete her tax return by April 15. Can
she request an extension to file her return? By what date must she do so? If so, what is
the latest date that she could file her return this year without penalty? - Answer
Describe in general the process by which new tax legislation is enacted - Answer
What is the difference between primary and secondary authorities? Explain the role of
each authority type in conducting tax research. - Answer
The estate of Monique Chablis earned $450 of income this year. Is the estate required
to file an income tax return? - Answer
Shane has never filed a tax return despite earning excessive sums of money as a
gambler. When does the statute of limitations expire for the years in which Shane has
not filed a tax return? - Answer
Latoya filed her tax return on February 10th this year. When will the statute of limitations
expire for this tax return? - Answer
Using the facts from the previous problem, how would your answer change if Latoya
understated her income by 40 percent? How would your answer change if Latoya
intentionally failed to report as taxable income any cash payments she received from
her clients. - Answer
Campbell's tax return was audited because she failed to report interest she earned on
her tax return. What IRS audit selection method identified her tax return? - Answer
document matching
Yong's tax return was audited because he calculated his tax liability incorrectly. What
IRS audit procedure identified his tax return for audit? - Answer
If an individual forms a sole proprietorship, which nontax factor will be of greatest
benefit to the sole proprietor?
A. Liability protection
B. Legal flexibility in defining rights and responsibilities of owners
C. Facilitates initial public offerings
D. Minimal time and cost to organize - Answer
Which legal entity provides the least flexible legal arrangement for owners?
A. Corporation
Marlon and Latoya recently started building a house. They had to pay $300 to the
county government for a building permit. Is the $300 payment a tax? Why or why not? -
Answer fee
The city of Birmingham recently enacted a 1 percent surcharge on hotel rooms that will
help pay for the city's new stadium. Is this a tax? Why or why not? - Answer tax
(earmarked)
Arnold and Lilly have recently had a heated discussion about whether a sales tax is a
proportional tax or a regressive tax. Lilly argues that a sales tax is regressive. Arnold
counters that the sales tax is a flat tax. Who is correct? - Answer both
Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from
an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much
federal tax will he owe? What is his average tax rate? What is his effective tax rate?
What is his current marginal tax rate? - Answer 14606.25
Using the facts in the previous problem, if Chuck earns an additional $40,000 of taxable
income, what is his marginal tax rate on this income? What is his marginal rate if,
instead, he had $40,000 of additional deductions? - Answer 26.92
24.53
Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest.
Alternatively, Melinda could have invested the $200,000 in a bond recently issued by
Surething, Inc. that pays 8 percent interest with similar risk and other nontax
characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 25
percent.
What is her after-tax rate of return for the City of Heflin bond? - Answer 6%
Hugh has the choice between investing in a City of Heflin bond at 6 percent or a
Surething bond at 9 percent. Assuming that both bonds have the same nontax
characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should
he invest? - Answer city
Using the facts in the previous problem, what interest rate does Surething, Inc., need to
offer to make Hugh indifferent between investing in the two bonds? - Answer 10.1% he
would take corp
Song earns $100,000 taxable income as an interior designer and is taxed at an average
rate of 20 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such
that Song's average tax rate increases from 20 percent to 25 percent, how much more
income tax will she pay assuming that the income effect is descriptive? What effect will
this tax rate change have on the tax base and tax collected? - Answer 66666.67 more
taxes paid
, Tax Test 1 Problems
Benita is concerned that she will not be able to complete her tax return by April 15. Can
she request an extension to file her return? By what date must she do so? If so, what is
the latest date that she could file her return this year without penalty? - Answer
Describe in general the process by which new tax legislation is enacted - Answer
What is the difference between primary and secondary authorities? Explain the role of
each authority type in conducting tax research. - Answer
The estate of Monique Chablis earned $450 of income this year. Is the estate required
to file an income tax return? - Answer
Shane has never filed a tax return despite earning excessive sums of money as a
gambler. When does the statute of limitations expire for the years in which Shane has
not filed a tax return? - Answer
Latoya filed her tax return on February 10th this year. When will the statute of limitations
expire for this tax return? - Answer
Using the facts from the previous problem, how would your answer change if Latoya
understated her income by 40 percent? How would your answer change if Latoya
intentionally failed to report as taxable income any cash payments she received from
her clients. - Answer
Campbell's tax return was audited because she failed to report interest she earned on
her tax return. What IRS audit selection method identified her tax return? - Answer
document matching
Yong's tax return was audited because he calculated his tax liability incorrectly. What
IRS audit procedure identified his tax return for audit? - Answer
If an individual forms a sole proprietorship, which nontax factor will be of greatest
benefit to the sole proprietor?
A. Liability protection
B. Legal flexibility in defining rights and responsibilities of owners
C. Facilitates initial public offerings
D. Minimal time and cost to organize - Answer
Which legal entity provides the least flexible legal arrangement for owners?
A. Corporation
