Question 1

Which of the following expenses cannot be used to reduce taxable corporate income?

Accepted Answer

Cash dividends do not reduce taxable corporate income as they are distributed after tax has been paid on the income.

Question 2

Which of the following categories of a statement of cash flows is affected by the payment of interest expense?

Accepted Answer

The answer of Which of the following categories of a...

Question 3

According to the current U.S.tax code,the marginal tax rate for personal taxpayers in the highest levels of income is:

Accepted Answer

The highest marginal tax rate for personal taxpayers in the current U.S. tax code is 39.6%. This rate applies to individuals who have a taxable income of $418,400 or more, or married couples filing jointly with a taxable income of $470,700 or more.

Question 4

An individual's income for the year includes both dividend and interest payments.Which of the following statements will be correct concerning that individual's tax liability?

Accepted Answer

Both dividend and interest payments are taxed at the personal level. Dividends are taxed as a part of an individual's income tax, while interest income is also taxed at the personal level. There is no tax paid at the corporate level for these payments.

Question 5

What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing?

Accepted Answer

If a firm has negative cash flows from both operations and financing but still has an increase in cash balance, it suggests that the firm received more cash from investing activities than it spent. This could be due to the sale of equipment or other long-term assets, resulting in a positive cash flow from investing activities.

Question 6

Which of the following statements appears correct for a corporation with a negative net income in both the present and the last fiscal year?

Accepted Answer

The answer of Which of the following statements appears correct...

Question 7

Marginal tax rates are based on:

Accepted Answer

Marginal tax rates are based on an additional dollar of income earned. This means that the rate only applies to the income that falls within that specific tax bracket. It is not based on net income, total income or earnings before interest and taxes.

Question 8

If a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period,based on these two categories cash flow will increase by:

Accepted Answer

The increase in accounts receivable indicates that the revenue has been generated on credit, but not yet collected in cash. Therefore, cash flow has not increased by the full $2,000 in sales, but by only the amount of sales that have been collected in cash, which would be $1,500 ($2,000 - $500).

Question 9

What is the marginal tax rate for a corporation with $60,000 taxable income and an average tax rate of 16.67% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000?

Accepted Answer

The marginal tax rate is the rate applied to the next dollar of income. Since the corporation's taxable income exceeds $50,000, it falls into the next tax bracket, which is 25%.

Question 10

What is the marginal impact on taxes for a profitable corporation in the 35% marginal tax bracket that incurs an additional dollar of depreciation expense?

Accepted Answer

When a corporation incurs additional depreciation expense, its taxable income reduces by that amount. Since the corporation is in the 35% marginal tax bracket, it will save 35 cents in taxes for every dollar of depreciation expense incurred. Therefore, the marginal impact on taxes will be a decrease of 35 cents.

Question 11

Which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period?

Accepted Answer

Acquisition of equipment can lead to high sales if the equipment is used for production, but it also requires significant cash outflow, reducing cash flow despite high sales.

Question 12

For all U.S.corporations except those in the lowest and highest tax brackets,their:

Accepted Answer

For corporations in the middle tax brackets, their marginal tax rate is higher than their average tax rate because the marginal tax rate refers to the tax rate applied to the last dollar of income earned, whereas the average tax rate is the total tax paid divided by total taxable income. As a corporation earns more income and moves into a higher tax bracket, the next dollar earned will be taxed at a higher marginal tax rate, which increases the overall tax burden and makes the average tax rate lower than the marginal tax rate.

Question 13

For a corporation in the 25% marginal tax bracket that incurs $70.00 in labor and materials expense,plus $15.00 in depreciation expense while generating an incremental revenue of $100.00,tax liability will increase by:

Accepted Answer

The taxable income is $15 ($100 revenue - $70 labor/materials - $15 depreciation). The tax liability increase is 25% of $15, which is $3.75.

Question 14

Which of the following could account for a firm that has a negative net income,yet has a positive amount of cash provided by operations?

Accepted Answer

A decrease in accounts receivable could indicate that the company collected more cash from customers during the period, resulting in a positive amount of cash provided by operations. However, the net income was negative, which means that the company's expenses exceeded its revenues. This is unrelated to the change in accounts receivable and could be due to factors such as high operating expenses or one-time charges. Option A is incorrect because depreciation is a non-cash expense that is added back to net income when calculating cash provided by operations. Option B and D are also unlikely to be the primary reasons for a negative net income, as they do not directly affect profitability.

Question 15

If a firm's net income is positive and its noncash expenses are positive,which of the following could account for a negative amount of cash provided by operations?

Accepted Answer

The answer of If a firm's net income is positive...

Question 16

Which of the following statements is correct for an individual with a net income of $50,000.00,a tax liability of $10,704.50,and a 28% marginal tax rate?

Accepted Answer

The average tax rate is calculated by dividing the tax liability by the net income. $10,704.50 / $50,000 = 0.21409 or 21.41%.

Question 17

According to the statement of cash flows,cash flows from financing could be positive if:

Accepted Answer

The answer of According to the statement of cash flows,cash...

Question 18

Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?

Accepted Answer

The answer of Which of the following statements is more...

Question 19

What happens when moving from net income to cash flows as the result of an increase in inventory balances?

Accepted Answer

An increase in inventory balances means that more resources are tied up in inventory and haven't been sold yet. Therefore, cash has not been generated from these sales and cash flows decrease.

Question 20

Assuming at the $50,000 income level that the corporate tax rate increases from 15 to 25%,which of the following statements is correct for a firm with $75,000 income?

Accepted Answer

The average tax rate is calculated by dividing the total tax by the total income. If the tax rate is 25% for income above $50,000, the firm pays 15% on the first $50,000 and 25% on the remaining $25,000. The total tax is $7,500 + $6,250 = $13,750. The average tax rate is $13,750 / $75,000 = 18.33%.

Quiz 3: Accounting and Finance