C237 TAXATION 1 REVIEW MASTER QUIZ UPDATED
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
1. The largest source of revenues for the federal
government comes from
Answer:
individual income taxes.
Question:
2. Arthur pays tax of $5,000 on taxable income of $50,000
while taxpayer Barbara pays tax of $12,000 on $120,000.
The tax is a
Answer:
proportional tax.
Question:
3. Which of the following taxes is regressive?
Answer:
Federal Insurance Contributions Act (FICA)
,Question:
4. Sarah contributes $25,000 to a church. Sarah's marginal
tax rate is 35% while her average tax rate is 25%. After
considering her tax savings, Sarah's contribution costs
Answer:
$16,250.
25 000 x 35% marginal rate= $8750 savings
25 000 - 8750 = 16 250 contribution cost
The marginal tax rate is of greater significance in measuring the tax effect for
sarah's decision.
The marginal tax rate is the percentage that is applied to an incremental amount
of taxable income that is added to or subtracted from
the tax base.
If her marginal tax rate is 35%, she will save 35
cents for every $1 contributed to her church.
The average tax rate is simply the total tax liability divided by taxable income.
a- marginal tax rate is the tax rate applied to an incremental amount of taxable
income that is added to the tax base. The marginal tax rate concept is useful for
planning because it measures the tax effect of a proposed transaction.
b- The average tax rate is computed by dividing the total tax liability by the
amount of taxable income. This represents the average rate of tax for each dollar
of taxable income.
c- The effective tax rate is the total tax liability divided by total economic income.
Question:
5. All of the following statements are true except
Answer:
LLCs are generally taxed as partnerships.
the net income of C corporation is subject to double taxation because it is taxed
at the entity level and dividends paid from the C corporation to individual
shareholders is also taxed.
the net income earned by a sole proprietorship is reported on the owner's
individual income tax return.
Not ture:
the net income of an S corporation is subject to double taxation because it is
taxed at the entity level and dividends paid from the S corporation to individual
shareholders are also taxed.
Question:
6. The term "tax law" includes
Answer:
judicial decisions.
Treasury Regulations.
Internal Revenue Code.
, Question:
7. Which of the following serves as the highest authority for
tax research, planning, and compliance activities?
Answer:
Internal Revenue Code
Question:
8. All of the following are executive (administrative) sources
of tax law except
Answer:
Revenue Rulings.
Income Tax Regulations.
Revenue Procedures.
Not:
Internal Revenue Code.---> legislative
Question:
9. When returns are processed, they are scored to
determine their potential for yielding additional tax
revenues. This program is called
Answer:
Discriminant Function System
Selection of Returns for Audit
The U.S. tax system is based on self-assessment and voluntary compliance.
However, enforcement by the IRS is essential to maintain the integrity of the tax
system. The IRS uses both computers and experienced personnel to select
returns for examination. With respect to the use of the computer, a Discriminant
Function System (DIF) is used to classify returns to be selected for audit. The DIF
system generates a "score" for a return based on the potential for the return to
generate additional tax revenue. After returns are scored under the DIF system,
the returns are manually screened by experienced IRS personnel who decide
which returns warrant further examination. In the aggregate, less than 1% of all
individual returns are selected for examination each y
ACTUAL QUESTIONS AND CORRECT ANSWERS
Question:
1. The largest source of revenues for the federal
government comes from
Answer:
individual income taxes.
Question:
2. Arthur pays tax of $5,000 on taxable income of $50,000
while taxpayer Barbara pays tax of $12,000 on $120,000.
The tax is a
Answer:
proportional tax.
Question:
3. Which of the following taxes is regressive?
Answer:
Federal Insurance Contributions Act (FICA)
,Question:
4. Sarah contributes $25,000 to a church. Sarah's marginal
tax rate is 35% while her average tax rate is 25%. After
considering her tax savings, Sarah's contribution costs
Answer:
$16,250.
25 000 x 35% marginal rate= $8750 savings
25 000 - 8750 = 16 250 contribution cost
The marginal tax rate is of greater significance in measuring the tax effect for
sarah's decision.
The marginal tax rate is the percentage that is applied to an incremental amount
of taxable income that is added to or subtracted from
the tax base.
If her marginal tax rate is 35%, she will save 35
cents for every $1 contributed to her church.
The average tax rate is simply the total tax liability divided by taxable income.
a- marginal tax rate is the tax rate applied to an incremental amount of taxable
income that is added to the tax base. The marginal tax rate concept is useful for
planning because it measures the tax effect of a proposed transaction.
b- The average tax rate is computed by dividing the total tax liability by the
amount of taxable income. This represents the average rate of tax for each dollar
of taxable income.
c- The effective tax rate is the total tax liability divided by total economic income.
Question:
5. All of the following statements are true except
Answer:
LLCs are generally taxed as partnerships.
the net income of C corporation is subject to double taxation because it is taxed
at the entity level and dividends paid from the C corporation to individual
shareholders is also taxed.
the net income earned by a sole proprietorship is reported on the owner's
individual income tax return.
Not ture:
the net income of an S corporation is subject to double taxation because it is
taxed at the entity level and dividends paid from the S corporation to individual
shareholders are also taxed.
Question:
6. The term "tax law" includes
Answer:
judicial decisions.
Treasury Regulations.
Internal Revenue Code.
, Question:
7. Which of the following serves as the highest authority for
tax research, planning, and compliance activities?
Answer:
Internal Revenue Code
Question:
8. All of the following are executive (administrative) sources
of tax law except
Answer:
Revenue Rulings.
Income Tax Regulations.
Revenue Procedures.
Not:
Internal Revenue Code.---> legislative
Question:
9. When returns are processed, they are scored to
determine their potential for yielding additional tax
revenues. This program is called
Answer:
Discriminant Function System
Selection of Returns for Audit
The U.S. tax system is based on self-assessment and voluntary compliance.
However, enforcement by the IRS is essential to maintain the integrity of the tax
system. The IRS uses both computers and experienced personnel to select
returns for examination. With respect to the use of the computer, a Discriminant
Function System (DIF) is used to classify returns to be selected for audit. The DIF
system generates a "score" for a return based on the potential for the return to
generate additional tax revenue. After returns are scored under the DIF system,
the returns are manually screened by experienced IRS personnel who decide
which returns warrant further examination. In the aggregate, less than 1% of all
individual returns are selected for examination each y
