Tax Test 1 - Multiple Choice
with correct questions and
answers
usr
[COMPANY NAME] [Company address]
,1. Which of the following is an example of a transaction-based tax?
a. Both an excise tax and an estate tax on the transfer of assets at
death
b. A tax on net business income
c. An excise tax
d. An estate tax on the transfer of assets at death Answer: A
2. Ms. Owen purchased 2,000 shares of General Electric common
stock through a broker. This purchase is an example of a Answer:
a. Fictitious market transaction
b. Related party transactions
c. Public market transactions
d. Private market transactions Answer: C
3. Which of the following statements concerning tax preferences is
false?
a. Tax preferences increase the complexity of the law
b. Tax preferences do not improve the accurate measurement of the
tax base
c. Tax preferences are government subsidies for targeted taxpayer
activities
d. Tax preferences raise additional revenue for the government
Answer: D
4. Which of the following statements about tax legal doctrines is
false?
a. The scope of the economic substance, business purpose,
substance over form, and step transaction doctrines often
overlap
b. The IRS's application of the doctrines is subjective
c. Taxpayers can invoke the substance over form doctrine to
undo the tax consequences of a failed planning strategy
d. The economic substance, business purpose, substance over form,
and step transaction doctrines increase the uncertainty of the tax
law Answer: C
5. Which of the following statements about the charter variable is true
,a. The tax character of income cannot change from year to year and
tax plan- ning strategies based on the charter variable must involve at
least 2 different taxpayers
b. The tax charter of income cannot change form year to year
c. Tax planning strategies based on the character variable must
involve at least 2 different taxpayers
d. The tax character of income is determined strictly by tax law
Answer: D
, 6. The state of Virginia charges motorists 50 cents for every trip
across a toll bridge over the James River. This charge is an
example of a(n) Answer:
a. Activity based tax
b. Transaction based tax
c. Excise tax
d. Users fee Answer: D
7. Which of the following statements about different tax rates over
time is false
a. Future tax rates used in NPV calculations are estimates because
congress can change the statutory rate every year
b. A 5% increase in the tax rate for year 10 has less effect on NPV
than a 5% increase in the tax rate for year 4
c. A frms future tax rate may change because of increases or
decreased in future taxable income
A NPV calculation must assume a constant tax rate for all future
periods Answer: D
8. Which of the following statements about discount rates is true?
a. The higher the marginal tax rate, the higher the discount rate for
future cash flows should be.
b. The higher the degree of risk involved in a transaction, the
higher the discount rate for future cash flows should be.
c.The longer the time period over which a transaction will generate
cash flows, the higher the discount rate should be.
d. The greater the amount of cash generated by a transaction, the
higher the discount rate should be. Answer: B
9. Mr. Dole needed to sell appreciated stock out of his investment
portfolio to generate cash to pay for his Christmas spending. He
decided to postpone the sale from December 20Y1 until January
20Y2. Mr. Dole is taking advantage of the Answer:
a. Character variable
b. Time period variable
with correct questions and
answers
usr
[COMPANY NAME] [Company address]
,1. Which of the following is an example of a transaction-based tax?
a. Both an excise tax and an estate tax on the transfer of assets at
death
b. A tax on net business income
c. An excise tax
d. An estate tax on the transfer of assets at death Answer: A
2. Ms. Owen purchased 2,000 shares of General Electric common
stock through a broker. This purchase is an example of a Answer:
a. Fictitious market transaction
b. Related party transactions
c. Public market transactions
d. Private market transactions Answer: C
3. Which of the following statements concerning tax preferences is
false?
a. Tax preferences increase the complexity of the law
b. Tax preferences do not improve the accurate measurement of the
tax base
c. Tax preferences are government subsidies for targeted taxpayer
activities
d. Tax preferences raise additional revenue for the government
Answer: D
4. Which of the following statements about tax legal doctrines is
false?
a. The scope of the economic substance, business purpose,
substance over form, and step transaction doctrines often
overlap
b. The IRS's application of the doctrines is subjective
c. Taxpayers can invoke the substance over form doctrine to
undo the tax consequences of a failed planning strategy
d. The economic substance, business purpose, substance over form,
and step transaction doctrines increase the uncertainty of the tax
law Answer: C
5. Which of the following statements about the charter variable is true
,a. The tax character of income cannot change from year to year and
tax plan- ning strategies based on the charter variable must involve at
least 2 different taxpayers
b. The tax charter of income cannot change form year to year
c. Tax planning strategies based on the character variable must
involve at least 2 different taxpayers
d. The tax character of income is determined strictly by tax law
Answer: D
, 6. The state of Virginia charges motorists 50 cents for every trip
across a toll bridge over the James River. This charge is an
example of a(n) Answer:
a. Activity based tax
b. Transaction based tax
c. Excise tax
d. Users fee Answer: D
7. Which of the following statements about different tax rates over
time is false
a. Future tax rates used in NPV calculations are estimates because
congress can change the statutory rate every year
b. A 5% increase in the tax rate for year 10 has less effect on NPV
than a 5% increase in the tax rate for year 4
c. A frms future tax rate may change because of increases or
decreased in future taxable income
A NPV calculation must assume a constant tax rate for all future
periods Answer: D
8. Which of the following statements about discount rates is true?
a. The higher the marginal tax rate, the higher the discount rate for
future cash flows should be.
b. The higher the degree of risk involved in a transaction, the
higher the discount rate for future cash flows should be.
c.The longer the time period over which a transaction will generate
cash flows, the higher the discount rate should be.
d. The greater the amount of cash generated by a transaction, the
higher the discount rate should be. Answer: B
9. Mr. Dole needed to sell appreciated stock out of his investment
portfolio to generate cash to pay for his Christmas spending. He
decided to postpone the sale from December 20Y1 until January
20Y2. Mr. Dole is taking advantage of the Answer:
a. Character variable
b. Time period variable
