Question 1

The following is a listing of tax considerations for a family. How much is the their taxable income? $\begin{array}{lll}
2 \text { exemptions } & \$ 3,050 & \text { per exemption } \
\text { Salary income of husband } & 40,000 \
\text { Real estate taxes } & 4,000 \
\text { Interest from savings account } & 800 \
\text { Interest on mortgage } & 2,800 \
\text { Contributionsto church } & 600
\end{array}$

Accepted Answer

The answer of The following is a listing of tax...

Question 2

The following tax schedule applies to an individual. Her taxable income is $40,000. How much is her total tax? 10% of the first $10,000
15% of the next $15,000
25% of the next $10,000
35% of the next $20,000

Accepted Answer

The taxable income is $40,000
The first $10,000 is taxed at 10%, which gives $1,000 tax
The next $15,000 (i.e., taxable income from $10,001 to $25,000) is taxed at 15%, which gives $2,250 tax
The next $10,000 (i.e., taxable income from $25,001 to $35,000) is taxed at 25%, which gives $2,500 tax
The remaining $5,000 (i.e., taxable income from $35,001 to $40,000) is taxed at 35%, which gives $1,750 tax
Therefore, the total tax is $1,000 + $2,250 + $2,500 + $1,750 = $7,500.

So, the best choice is C.

Question 3

Exxon Corp. bought an oil rig exactly 6 years ago for $100,000,000. Exxon depreciates oil rigs straight line over 10 years assuming no salvage value. The rig was just sold to British Petroleum for $30,000,000. What Capital Gain/Loss will Exxon report on this transaction?

Accepted Answer

The oil rig was sold for $30,000,000. However, the book value of the oil rig after 6 years of straight-line depreciation would be calculated as follows: 
Depreciation per year = $100,000,000 / 10 = $10,000,000
Depreciation for 6 years = $10,000,000 x 6 = $60,000,000
Book value after 6 years = $100,000,000 - $60,000,000 = $40,000,000

Since the sale price of $30,000,000 is less than the book value of $40,000,000, Exxon will report a loss on this transaction. The loss will be the difference between the book value and the sale price: 
Loss = $40,000,000 - $30,000,000 = $10,000,000

Therefore, the correct answer is C) Loss of $10,000,000.

Question 4

Selected financial statement accounts are as follows. How much is the firm's ending equity? $\begin{array}{lr}
\text {Income for the year }&\$ 25,000\
\text {Dividends paid }&6,000\
\text {Beginning equity for the year }&56,000\
\text {Adclitional stock sold }&22,000\
\end{array}$

Accepted Answer

The answer of Selected financial statement accounts are as follows....

Question 5

Assume a municipal bond is issued by the State of New York. Its yield is stated at 6%. A taxable corporate bond of equivalent quality is yielding 9%. You are in the 35% tax bracket and your son is in the 10% tax bracket. Which would be the correct investment strategy for both you and your son?

Accepted Answer

Since municipal bond interest is tax-exempt at the federal level, the after-tax yield for the State of New York's bond is 6%. For the corporate bond, the taxable yield of 9% must be decreased by 35% for you, since you are in the 35% tax bracket, and by 10% for your son, since he is in the 10% tax bracket. This makes the after-tax yield for the corporate bond 5.85% for you and 8.1% for your son.

Therefore, it makes sense for your son to acquire the corporate bond, as his after-tax yield is higher, and for you to acquire the municipal bond, as your after-tax yield is higher.

Question 6

A corporate bond is yielding 9%. You are in the 35% tax bracket. What is the after tax yield on the bond?

Accepted Answer

The after-tax yield on the bond is calculated as the yield on the bond (9%) minus the yield lost to taxes. Since the tax bracket is 35%, the yield lost to taxes is 9% * 35% = 3.15%. Therefore, the after-tax yield is 9% - 3.15% = 5.85%.

Question 7

The following is a listing of tax considerations for a family. How much is the family's taxable income? $\begin{array}{ll}B \text { exemptions }&\$3,050&\text { per exemption }\
\text { Salary } & 45,000 \
\text { Real estate taxes } & 5,000 \
\text { Interest from savings ac count } & 1,500 \
\text { Interest from municipal bond } & 2,000 \
\text { Interest on mortgage } & 3,000 \
\text { Contributions to church } & 1,500 \
\text { Loss on sale of stock held for 3 vears } & 6,000
\end{array}$

Accepted Answer

The answer of The following is a listing of tax...

Question 8

When must a vendor be paid in full under the terms of 2/10, n. 30?

Accepted Answer

The answer of When must a vendor be paid in...

Question 9

A firm had a piece of machinery that cost $7,000 when new and has accumulated $4,500 in depreciation. If the machine is sold for $4,000, which of the following is true?

Accepted Answer

The taxable gain or loss on the sale of an asset is calculated by taking the difference between the selling price and the book value (in this case, the cost minus accumulated depreciation). Therefore, the book value of the machinery is $7,000 - $4,500 = $2,500. Since the firm sold the machine for $4,000, the taxable gain is $4,000 - $2,500 = $1,500. Therefore, choice B is the correct answer.

Question 10

Which of the following is not part of working capital?

Accepted Answer

Accumulated depreciation is not considered part of working capital as it is a non-cash expense and is already accounted for in the value of fixed assets. Working capital generally includes current assets such as accounts receivable, inventory, and cash, as well as current liabilities such as accounts payable and short-term debt.

Question 11

Ben bought an ice cream machine 2 years ago for $8,000. The depreciation life for ice cream machines is 4 years. Ben uses straight line depreciation and a convention of taking one-half year's depreciation in the first year. Ben just sold his machine to Jerry for $6,000. What will be Ben's Capital Gain/(Loss) on this transaction?

Accepted Answer

The answer of Ben bought an ice cream machine 2...

Question 12

Assume Corporation A owns 51% of Corporation B. If Corporation A received $1,000,000 in dividends from Corporation B, how much would be taxable to Corporation A?

Accepted Answer

Corporation A owns more than 20% of Corporation B, so it qualifies for an 80% dividends received deduction. Therefore, 20% of the $1,000,000 dividend, which is $200,000, would be taxable to Corporation A.

Question 13

An accrual is best defined as:

Accepted Answer

An accrual is an accumulation of a liability in regard to an incomplete transaction. It represents an expense that has been incurred but not yet paid, or revenue that has been earned but not yet received. Accruals are used to ensure that financial statements reflect an entity's financial position and performance for a particular period accurately.

Question 14

Which is equivalent to EBIT assuming the firm has no leverage?

Accepted Answer

EBIT (Earnings Before Interest and Taxes) is equivalent to EBT (Earnings Before Taxes) when a firm has no leverage, as there are no interest expenses to deduct.

Question 15

The Tappan family has taxable income of $50,000. Tax tables indicate that the first $20,000 of income will be taxed at 24% and all income above $20,000 will be taxed at 30%. What are the Tappan's marginal and average tax rates?

Accepted Answer

The Tappan's marginal tax rate is the tax rate on the last dollar earned, which is 30%. 
To calculate the average tax rate, we need to find the total tax paid as a percentage of total income. 
For the first $20,000 of income, they pay 24% in taxes, which is $4,800. 
For the remaining income of $30,000, they pay 30% in taxes, which is $9,000. 
Their total tax paid is $13,800, which is 27.6% of their total income. 
Therefore, the Tappan's average tax rate is 27.6%.

Question 16

Depreciation expense of $2,000.00 will cause:

Accepted Answer

Depreciation expense represents the allocation of the cost of a long-term asset over its useful life. It is a non-cash expense, which means that it does not involve any outflow of cash. Instead, it reduces the value of the asset on the balance sheet and increases the amount of accumulated depreciation, which is a contra-asset account. Therefore, choice C is the correct answer, as it reflects the increase in accumulated depreciation by $2,000.

Question 17

The Johnson Company bought a truck costing $60,000 two years ago. The truck's estimated life was six years at the time of purchase. It was accounted for by using straight line depreciation with zero salvage value. If the truck was sold yesterday for $65,000, what is the capital gain that must be reported on the sale of the truck?

Accepted Answer

The annual depreciation expense for the truck is $60,000/6 = $10,000 per year.
After two years, the accumulated depreciation would be $20,000 ($10,000/year x 2 years).
Therefore, the book value of the truck would be $60,000 - $20,000 = $40,000.
When the truck is sold for $65,000, the capital gain is $65,000 - $40,000 = $25,000. Therefore, the answer is choice B) $25,000.

Question 18

Which of the following is a tax deductible expense?

Accepted Answer

The answer of Which of the following is a tax...

Question 19

Toys For U, Inc. just purchased a new asset costing $500,000. The machine will be depreciated straight-line over a 10-year period using the convention of taking a half year's depreciation in the first year. Given the following information about old assets the firm already had, calculate net fixed assets at year end. $\begin{array}{lr}
\text {Gross Fixed Assets }&\$ 2,000,000\
\text {Accumulated. Depreciation }&\$ 960,000\
\text {Continuing Anumal Depreciation Expense }& \$ 240,000\
\end{array}$

Accepted Answer

The new asset's first-year depreciation is $25,000 ($500,000 / 10 years * 0.5). The total depreciation for the year is $265,000 ($240,000 + $25,000). Accumulated depreciation becomes $1,225,000 ($960,000 + $265,000). Net fixed assets are $1,275,000 ($2,500,000 - $1,225,000).

Question 20

Grass Enterprises just closed a good year. It had Sales of $10 million, EBIT of $1 million and Net Income of $500,000. The firm also paid dividends of $150,000 during the year. If Grass started the year with equity of $900,000, what will its year ending equity be?

Accepted Answer

Net income of $500,000 increases the equity to $900,000 + $500,000 = $1,400,000. Dividends of $150,000 decrease the equity to $1,400,000 - $150,000 = $1,250,000.

Quiz 2: Financial Background: a Review of Accounting, Financial Statements, and Taxes

The following tax schedule applies to an individual. Her taxable income is $40,000. How much is her total tax? 10% of the first $10,000 15% of the next $15,000 25% of the next $10,000 35% of the next $20,000