Accounting 150 - Principles of Income Taxation » Fall 2020 » Chapter 2 Quiz

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Question #1
The assignment of income doctrine most likely limits which of the following strategies?
A.   Conversion
B.   Income shifting
C.   None of the choices are correct
D.   Tax minimization
E.   Timing
Question #2
The present value concept becomes more important as interest rate increase.
A.   TRUE
B.   FALSE
Question #3
Which of the following strategies exploits the fact that tax rates vary by activity (e.g.. income type)?
A.   Present v&ue
B.   Timing
C.   Evasion
D.   Income shifting
E.   Conversion
Question #4
If tax rates will be the same next year, the taxpayer should generally accelerate deductions.
A.   FALSE
B.   TRUE
Question #5
If Rachel has a 37% tax rate and a 10% after-tax rate of return, a $100,000 tax deduction in one year will save how much tax in today’s dollars (rounded)? (Exhibit 3-1)
A.   $100,000
B.   $36,040
C.   $37,000
D.   $33,633
E.   None of the choices are correct
Question #6
The goal of tax planning is to maximize after-tax wealth.
A.   TRUE
B.   FALSE
Question #7
If Jack earns an 8% after-tax rate of return, $10,000 received in three years is worth how much today (rounded)? (Exhibit 3-1)
A.   $10,000
B.   $7,940
C.   $9,260
D.   $11,664
E.   $8,570
Question #8
The conversion strategy becomes more important as interest rates increase.
A.   TRUE
B.   FALSE
Question #9
Which of the following items is illegal under the tax law?
A.   Deferring income
B.   Accelerating deductions
C.   All of the choices are legal
D.   Tax evasion
E.   Tax avoidance
Question #10
A common income shifting strategy is to:
A.   Defer income
B.   Invest in tax exempt bonds.
C.   Shift income from a low tax rate Jurisdiction to a high tax rate jurisdiction.
D.   Shift income from a high tax rate Jurisdiction to a low tax rate jurisdiction.
Question #11
Which of the following is an example of the conversion strategy?
A.   A high-tax rate parent employing her low-tax-rate son in the family business.
B.   An employer providing tax free benefits to employees instead of salary.
C.   Deferring income.
D.   Accelerating deductions
Question #12
The timing strategy is based on the idea that the period in which income is taxed affects the tax costs of the income.
A.   TRUE
B.   FALSE
Question #13
If John Invested $20,000 in a stock paying annual qualifying dividends (0% tax rate) equal to 4% of his investment what would the value of his investment be 5 years from now? Assume John’s marginal ordinary tax rate is 15%. (Do not round Intermediate calculations.)
A.   $23,639
B.   $23,400
C.   $24,333
D.   None of the choices are correct
E.   $24,000
Question #14
What explicit tax rate would keep Orlando indifferent between purchasing a municipal bond with a 4.0 percent return and a taxable bond with a 5.5 percent before-tax return?
A.   31.2%
B.   27.3%
C.   None of the choices are correct.
D.   33.5%
E.   25.0%
Question #15
Assume that Bill’s marginal tax rate is 37%. If corporate bonds pay 10% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?
A.   None of the choices are correct
B.   6.30%
C.   8.00%
D.   10.00%
E.   15.87%

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