Chapter 21: The Corporation Tax
Multiple Choice
1. The difference between revenues and expenditures for inputs is known as
A) profits.
B) debits.
C) cash flow.
D) net revenue.
Ans: c
2. Before applying the 35 percent tax rate, firms may deduct
A) employee compensation.
B) interest payments.
C) depreciation allowances.
D) all of the above.
Ans: d
3. When one company is owned by a corporation but is chartered separately from the parent company,
this is
A) a subsidiary.
B) a clone.
C) used for tax evasion.
D) illegal.
Ans: a
4. For corporate taxes, the lowest tax bracket is
A) 9 percent.
B) 12 percent.
C) 15 percent.
D) 22 percent.
Ans: c
5. Economic depreciation is
A) the change in the distribution of real income induced by a tax.
B) the extent to which an asset decreases in value during a period of time.
C) the money value of the net increase in an individual’s power to consume during a period.
D) a subtraction from tax liability (as opposed to a subtraction from taxable income).
Ans: b
6. Which one of these statements concerning the Tax Reform Act of 1986 is false?
A) The Act evened out tax rates on alternative types of investment.
, B) The Act increased effective tax rates on equipment.
C) It raised the personal exemption substantially.
D) The Act had a specified time period of effectiveness.
Ans: d
7. Most states do
A) not collect any corporate income taxes.
B) have corporate income taxes.
C) not recognize entities known as corporations.
D) none of the above.
Ans: b
8. Investment tax credits (ITCs) are the firm’s tax bill when particular capital assets are
purchased.
A) deducted from
B) added to
C) close to zero for
D) none of the above for
Ans: a
9. The excess burden of the corporate income tax is
A) almost zero.
B) greatest when the interest elasticity of saving is zero.
C) a result of the combined distortion in the pattern of investment and a reduction in total investment.
D) none of the above.
Ans: c
10. According to research, after the Tax Reform Act of 1986, the effective marginal tax rate on equipment
has
A) decreased substantially.
B) stayed basically the same.
C) increased.
D) decreased slightly.
Ans: c
11. When calculating the user cost of capital, the after-tax rate of return and the economic rate of
depreciation interact by
A) multiplication.
B) subtraction.
C) division.
D) addition.
Ans: d
12. When each stockholder incurs a tax liability on his or her share of the earnings of a corporation
(whether or not the earnings are distributed), this is known as
Multiple Choice
1. The difference between revenues and expenditures for inputs is known as
A) profits.
B) debits.
C) cash flow.
D) net revenue.
Ans: c
2. Before applying the 35 percent tax rate, firms may deduct
A) employee compensation.
B) interest payments.
C) depreciation allowances.
D) all of the above.
Ans: d
3. When one company is owned by a corporation but is chartered separately from the parent company,
this is
A) a subsidiary.
B) a clone.
C) used for tax evasion.
D) illegal.
Ans: a
4. For corporate taxes, the lowest tax bracket is
A) 9 percent.
B) 12 percent.
C) 15 percent.
D) 22 percent.
Ans: c
5. Economic depreciation is
A) the change in the distribution of real income induced by a tax.
B) the extent to which an asset decreases in value during a period of time.
C) the money value of the net increase in an individual’s power to consume during a period.
D) a subtraction from tax liability (as opposed to a subtraction from taxable income).
Ans: b
6. Which one of these statements concerning the Tax Reform Act of 1986 is false?
A) The Act evened out tax rates on alternative types of investment.
, B) The Act increased effective tax rates on equipment.
C) It raised the personal exemption substantially.
D) The Act had a specified time period of effectiveness.
Ans: d
7. Most states do
A) not collect any corporate income taxes.
B) have corporate income taxes.
C) not recognize entities known as corporations.
D) none of the above.
Ans: b
8. Investment tax credits (ITCs) are the firm’s tax bill when particular capital assets are
purchased.
A) deducted from
B) added to
C) close to zero for
D) none of the above for
Ans: a
9. The excess burden of the corporate income tax is
A) almost zero.
B) greatest when the interest elasticity of saving is zero.
C) a result of the combined distortion in the pattern of investment and a reduction in total investment.
D) none of the above.
Ans: c
10. According to research, after the Tax Reform Act of 1986, the effective marginal tax rate on equipment
has
A) decreased substantially.
B) stayed basically the same.
C) increased.
D) decreased slightly.
Ans: c
11. When calculating the user cost of capital, the after-tax rate of return and the economic rate of
depreciation interact by
A) multiplication.
B) subtraction.
C) division.
D) addition.
Ans: d
12. When each stockholder incurs a tax liability on his or her share of the earnings of a corporation
(whether or not the earnings are distributed), this is known as
