Question 1

Municipal bonds are debt obligations of the states, municipalities and political subdivisions. They are exempt from federal taxation.

Accepted Answer

Municipal bonds are generally exempt from federal taxation, making them a popular choice for investors seeking tax-free income.

Question 2

If it makes tax sense to finance businesses with debt, why do firms typically borrow less than half of their capital, i.e., what are the negatives of debt financing?

Accepted Answer

The answer of If it makes tax sense to finance...

Question 3

During the past year, Albert Corporation had 
 sales of $5 million, 
cost of goods sold of $2.7 million, 
operating expense of $1.3 million, and 
interest expense of $0.5 million.   
During the year Albert 
paid a preferred stock dividend of $100,000 
paid a common stock dividend of $150,000 and 
paid off debt of $2.3 million.   
What was Albert's taxable income?

Accepted Answer

The answer of During the past year, Albert Corporation had...

Question 4

The Smith family has the following income 
  During the tax year they sold a vacation home for $65,000 that they had acquired several years ago for $58,000. They also sold some of their GM stock, receiving $22,000 after brokerage commissions. The shares had originally been purchased for $30,000. They paid $19,000 interest on their home mortgage and $3,000 interest on credit card debt. They paid state income tax of $7,000 and real estate tax of $3,000. They donated $2,000 to their church. They also paid $1,400 toward the support of an elderly parent. The Smith's have two small children. The personal exemption rate is $3,050. What is the Smith's taxable income? Show all calculations clearly.

Accepted Answer

The answer of The Smith family has the following income...

Question 5

The corporate tax table seems dissimilar to individual tax tables in that corporate rates are not always increased as income increases. ​

Accepted Answer

The corporate tax table does not follow a progressive tax rate structure like individual tax tables, where tax rates increase as income levels increase. Instead, corporate tax rates are typically a flat rate and can vary depending on the country or state.

Question 6

The corporate tax system takes away the benefit of low rates on early income as income increases.

Accepted Answer

The corporate tax system is structured so that as a corporation's income increases, the tax rate also increases, taking away the benefit of low rates on early income. This is often referred to as a progressive tax system.

Question 7

Congress intended preferential tax treatment on capital gains, recognizing that offering an incentive to capital investments is healthy for the economy.

Accepted Answer

Congress did intend preferential tax treatment on capital gains in order to encourage and promote investment in the economy.

Question 8

​One of the most significant exemptions for most people is interest on a home mortgage.

Accepted Answer

The answer of ​One of the most significant exemptions for...

Question 9

Wealth Taxes are levied by cities and counties on the value of real estate. They are also called ad valorem taxes.

Accepted Answer

Wealth taxes, also known as property taxes or ad valorem taxes, are levied by cities and counties on the value of real estate.

Question 10

The corporate tax system appears not to be progressive, but in fact it's more progressive that the personal system. Explain.

Accepted Answer

The answer of The corporate tax system appears not to...

Question 11

The tax treatment of capital gains is a big political issue. Republicans generally favor lower rates on capital gains while Democrats do not. Why is the issue so politically sensitive?

Accepted Answer

The answer of The tax treatment of capital gains is...

Question 12

The taxation of proprietorships is about the same as that of corporations. ​

Accepted Answer

The taxation of proprietorships is different from that of corporations. Proprietorships are taxed as pass-through entities, where the business profits or losses are reported on the owner's personal income tax return. Corporations, on the other hand, are taxed separately from their owners and may be subject to different taxes such as corporate income tax, capital gains tax, and dividends tax.

Question 13

A company has a loss of $15,000 this year, a profit of $3,000 last year, a profit of $8,000 two years ago, and another profit of $2,000 three years ago. It makes sense to file amended returns for the last three years.

Accepted Answer

Filing amended returns for the last three years would not address the current year's loss. Amended returns can only be filed for past years with errors or omissions, and cannot change the current year's financial situation.

Question 14

A family has taxable income of $150,000. What is their tax liability if the relevant tax table is as follows:

Accepted Answer

The answer of A family has taxable income of $150,000....

Question 15

XYZ Inc. has taxable income of $14,000,000 in 20xx. 
a. What is their tax liability using the corporate income tax schedule? 
b. How would it change if they had losses of $4,000,000 two years ago and no income last year?

Accepted Answer

The answer of XYZ Inc. has taxable income of $14,000,000...

Question 16

The following question(s)refer to the year-end account balances for UBUS, Inc. The accounts are listed in alphabetical order, NOT in the order they appear on the financial statements. The applicable tax rate is 40%. 
UBUS Income Statement 
  UBUS Balance Sheet 
  a)What was UBUS Inc.'s earnings before interest and taxes (EBIT)? 
a. $155 
b. $120 
c. $100 
d. $215 
e. $200 
b)What is UBUS Inc.'s tax liability? 
a. $48 
b. $60 
c. $55 
d. $40 
e. $35 
c)What was UBUS Inc.'s Net Income? 
a. $72 
b. $45 
c. $60 
d. ($20)
e. $100 
d)What is UBUS Inc.'s Total Assets? 
a. $420 
b. $570 
c. $625 
d. $450 
e. $490 
e)What is UBUS Inc.'s Total Equity? 
a. $115 
b. $120 
c. $185 
d. $205 
e. $240 
f)What is UBUS Inc.'s Net Working Capital? 
a. $35 
b. $70 
c. $100 
d. $130 
e. $170

Accepted Answer

The answer of The following question(s)refer to the year-end account...

Question 17

A progressive tax system taxes incremental income at progressively higher rates. ​

Accepted Answer

A progressive tax system is designed to tax higher incomes at higher rates, while lower incomes are taxed at lower rates or not at all. This is intended to reduce income inequality and ensure everyone pays their fair share based on their ability to pay.

Question 18

The following is a listing of tax considerations for John and Jane Alexander, who file jointly and have two children. 
  Assume the following hypothetical tax table: 
  The personal exemption rate is $3,050 
The long-term capital gains rate for this family is 18%. 
a. How much is the Alexanders' taxable income? 
b. What is the tax on their ordinary income? 
c. What is their capital gains tax? 
d. What is their overall average tax rate including the tax on capital gains? 
e. What is their marginal tax rate on ordinary income?

Accepted Answer

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

Question 19

​In the corporate tax system, higher-income taxpayers pay targeted rates on their whole income.

Accepted Answer

The answer of ​In the corporate tax system, higher-income taxpayers...

Question 20

The government uses the tax system to collect revenue and to incentivize people to act in ways it deems beneficial.

Accepted Answer

This statement is true. The government has the authority to collect taxes from its citizens and uses this system to fund public goods and services. Additionally, taxes can be designed to encourage certain behaviors, such as tax credits for homebuyers or deductions for charitable donations.

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