ACC504
Individual & Corporate Taxation
Final Assessment Review
(With Solutions)
2026
1
,Multiple Choice Questions
Which of the following is an allowable deduction when computing
taxable income for a corporation?
A) Dividends paid to shareholders
B) Interest expense on a business loan
C) Purchase of raw materials on credit
D) Capital expenditures on a building
Answer: B
Rationale: Interest expense on a business loan is generally
deductible. Dividends are not deductible, purchases on credit are not
deductions until expensed, and capital expenditures are capitalized
rather than immediately deducted.
Under the US tax code, which type of income is generally taxed at a
lower rate for individuals?
A) Ordinary income
B) Dividends qualified under section 1(h)
C) Short-term capital gains
D) Salary income
Answer: B
Rationale: Qualified dividends are usually taxed at preferential long-
term capital gains rates, which are lower than ordinary income tax
rates.
In the context of corporate taxation, what is the primary purpose of
transfer pricing regulations?
A) To encourage foreign investment
B) To prevent tax base erosion by multinational companies
C) To simplify tax filing for corporations
D) To increase government tax revenue through higher penalties
2
, Answer: B
Rationale: Transfer pricing rules are designed to prevent related
companies from shifting profits between jurisdictions to avoid taxes.
Which of the following would most likely be considered a capital
asset for an individual taxpayer?
A) Inventory held for sale
B) Office equipment used in business
C) Shares of stock held for investment
D) Accounts receivable
Answer: C
Rationale: Capital assets are property held by a taxpayer (excluding
inventory, depreciable business property, and accounts receivable).
Stocks held for investment qualify as capital assets.
What is the purpose of the Alternative Minimum Tax (AMT) in
individual taxation?
A) To simplify tax calculations
B) To limit the use of certain deductions and credits
C) To encourage investment in low-income areas
D) To tax all income at a flat rate
Answer: B
Rationale: AMT ensures taxpayers with large deductions still pay a
minimum amount of tax, limiting the benefit of some deductions and
credits.
True/False Questions
The dividends-received deduction allows corporations to exclude a
percentage of dividends received from other corporations to avoid
triple taxation.
Answer: True
3
Individual & Corporate Taxation
Final Assessment Review
(With Solutions)
2026
1
,Multiple Choice Questions
Which of the following is an allowable deduction when computing
taxable income for a corporation?
A) Dividends paid to shareholders
B) Interest expense on a business loan
C) Purchase of raw materials on credit
D) Capital expenditures on a building
Answer: B
Rationale: Interest expense on a business loan is generally
deductible. Dividends are not deductible, purchases on credit are not
deductions until expensed, and capital expenditures are capitalized
rather than immediately deducted.
Under the US tax code, which type of income is generally taxed at a
lower rate for individuals?
A) Ordinary income
B) Dividends qualified under section 1(h)
C) Short-term capital gains
D) Salary income
Answer: B
Rationale: Qualified dividends are usually taxed at preferential long-
term capital gains rates, which are lower than ordinary income tax
rates.
In the context of corporate taxation, what is the primary purpose of
transfer pricing regulations?
A) To encourage foreign investment
B) To prevent tax base erosion by multinational companies
C) To simplify tax filing for corporations
D) To increase government tax revenue through higher penalties
2
, Answer: B
Rationale: Transfer pricing rules are designed to prevent related
companies from shifting profits between jurisdictions to avoid taxes.
Which of the following would most likely be considered a capital
asset for an individual taxpayer?
A) Inventory held for sale
B) Office equipment used in business
C) Shares of stock held for investment
D) Accounts receivable
Answer: C
Rationale: Capital assets are property held by a taxpayer (excluding
inventory, depreciable business property, and accounts receivable).
Stocks held for investment qualify as capital assets.
What is the purpose of the Alternative Minimum Tax (AMT) in
individual taxation?
A) To simplify tax calculations
B) To limit the use of certain deductions and credits
C) To encourage investment in low-income areas
D) To tax all income at a flat rate
Answer: B
Rationale: AMT ensures taxpayers with large deductions still pay a
minimum amount of tax, limiting the benefit of some deductions and
credits.
True/False Questions
The dividends-received deduction allows corporations to exclude a
percentage of dividends received from other corporations to avoid
triple taxation.
Answer: True
3
