Multiple Choice Questions 1. A graduated income tax system means: (a) Only taxable incomes above a certain

Question:

Multiple Choice Questions

1. A graduated income tax system means:

(a) Only taxable incomes above a certain level pay any taxes.

(b) A higher fl at rate goes with all of the taxable income.

(d) Rates are indexed each year to keep up with inflation.

2. All of the following are characteristics of a value-added tax system except:

(a) Value-added taxes are taxes on consumption.

(b) The end user pays value-added taxes.

(d) Value-added taxes are charged only on the raw materials for product development.

3. A small company has a taxable income that places it in the 35% tax bracket. The amount of taxes that a depreciation charge of $16,000 would save is closest to:

(a) $0

(b) $3200

(d) $10,400

4. A company that has a 50% effective tax rate had income of $200 million in each of the last 2 years. In one of those years, the company had deductions of $100 million. In the other year, the company had deductions of only $80 million. The difference in income taxes paid by the company in those 2 years was closest to:

(a) $10 million

(b) $20 million

(d) $60 million

5. Taxable income (TI) is defined as:

(a) TI = revenue + operating expenses – depreciation

(b) TI = revenue + operating expenses – depreciation

(d) TI = revenue + operating expenses – depreciation

6. The marginal tax rate is defined as:

(a) The percentage paid on the last dollar of income

(b) The tax rate that applies to a questionable investment

(d) The percentage paid on the first dollar of income

7. A subcontractor with an effective tax rate of 25% has gross income of $55,000, other income of $4000, operating expenses of $13,000, and other deductions and exemptions of $11,000. The income tax due is closest to:

(a) $11,750

(b) $8,750

(d) $13,750

8. When a depreciable asset is disposed of for less than its current book value, the transaction is known as:

(a) An after-tax expense

(b) Capital loss

(d) Depreciation recaptures

9. When accelerated depreciation methods or shortened recovery periods are applied, there are impacts on the income taxes due. Of the following, the statements that are commonly incorrect are:

1. Total taxes paid are the same for all depreciation methods.

2. Present worth of taxes is lower for shorter recovery periods.

3. Accelerated depreciation imposes more taxes in the later years of the recovery period.

4. Present worth of taxes is higher for shorter recovery periods.

(a) 1, 2, and 3

(b) 1 and 4

(d) 4