Federal Taxation Test 1 Exam Questions With
Answers
Which of the following is an example of a progressive tax system?
Social Security Tax
A sales tax
A proportional tax
U.S. Federal Income Tax
U.S. Federal Income Tax
Which of the following is considered a tax?
Fees to register an automobile
Speeding ticket
Entrance fee for a national museum
Local surcharge for a homeowner to connect to city sewer service
1% local surcharge on hotel rooms to pay for city government
1% local surcharge on hotel rooms to pay for city government
Mitch, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an
investment in the city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, how
much federal tax will he owe?
$22,000
$18,289.50
$13,879
$24,000
None of the choices are correct.
$18,289.50
$100,000 - 82,500 = 17,500 * 24% = 4,200 + 14,089.50 = $18,289.50
Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment
in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his average tax
rate (rounded)?
22.00%
13.88%
18.29%
24.00%
18.29%
, Total Tax -> $18,289.50 ÷ Taxable Income -> $100,000
Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment
in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his effective tax
rate (rounded)?
22.00%
24.00%
18.29%
16.63%
16.63%
Total Tax -> $18,289.50 ÷ Total Income -> $110,000
Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment
in city of Birmingham Bonds. If Marc earned an additional $80,000, what would his 2018 marginal tax
rate be on the $80,000 (rounded)?
26.25%
24.00%
32.48%
32.00%
26.25%
$57,500 (remaining in previous tax bracket) * 24% = $13,800
$22,500 (applying to next tax bracket) * 32% = $7,200
$13,800 + $7,200 = $21,000
$21,,000 = 26.25%
James invests $100,000 in the city of Athens bond that pays 8% interest. Alternatively, James could
have invested the $100,000 in a bond recently issued by HighTech, Inc. that pays 10% interest with
similar risk as the city of Athens bond. Assume that James's marginal tax rate is 25%. Which bond
should James choose and why?
The HighTech, Inc. bond because it earns a higher pre-tax rate of return.
The HighTech, Inc. bond because it earns a high after-tax rate of return.
The city of Athens bond because it earns a high pre-tax rate of return.
The city of Athens bond because it earns a higher after-tax rate of return.
James should be indifferent between the two bonds.
The city of Athens bond because it earns a higher after-tax rate of return.
City of Athens bond
Answers
Which of the following is an example of a progressive tax system?
Social Security Tax
A sales tax
A proportional tax
U.S. Federal Income Tax
U.S. Federal Income Tax
Which of the following is considered a tax?
Fees to register an automobile
Speeding ticket
Entrance fee for a national museum
Local surcharge for a homeowner to connect to city sewer service
1% local surcharge on hotel rooms to pay for city government
1% local surcharge on hotel rooms to pay for city government
Mitch, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an
investment in the city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, how
much federal tax will he owe?
$22,000
$18,289.50
$13,879
$24,000
None of the choices are correct.
$18,289.50
$100,000 - 82,500 = 17,500 * 24% = 4,200 + 14,089.50 = $18,289.50
Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment
in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his average tax
rate (rounded)?
22.00%
13.88%
18.29%
24.00%
18.29%
, Total Tax -> $18,289.50 ÷ Taxable Income -> $100,000
Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment
in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his effective tax
rate (rounded)?
22.00%
24.00%
18.29%
16.63%
16.63%
Total Tax -> $18,289.50 ÷ Total Income -> $110,000
Marc, a single taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment
in city of Birmingham Bonds. If Marc earned an additional $80,000, what would his 2018 marginal tax
rate be on the $80,000 (rounded)?
26.25%
24.00%
32.48%
32.00%
26.25%
$57,500 (remaining in previous tax bracket) * 24% = $13,800
$22,500 (applying to next tax bracket) * 32% = $7,200
$13,800 + $7,200 = $21,000
$21,,000 = 26.25%
James invests $100,000 in the city of Athens bond that pays 8% interest. Alternatively, James could
have invested the $100,000 in a bond recently issued by HighTech, Inc. that pays 10% interest with
similar risk as the city of Athens bond. Assume that James's marginal tax rate is 25%. Which bond
should James choose and why?
The HighTech, Inc. bond because it earns a higher pre-tax rate of return.
The HighTech, Inc. bond because it earns a high after-tax rate of return.
The city of Athens bond because it earns a high pre-tax rate of return.
The city of Athens bond because it earns a higher after-tax rate of return.
James should be indifferent between the two bonds.
The city of Athens bond because it earns a higher after-tax rate of return.
City of Athens bond
