Accounting 150 - Principles of Income Taxation » Fall 2021 » Chapter 3 Quiz
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Question #1
If Jack earns an 8% after-tax rate of return, $10,000 received in three years is worth how much today (rounded)?
A.
$9,260
B.
$10,000
C.
$7,940
D.
$8,570
E.
$11,664
Question #2
The goal of tax planning is to maximize after-tax wealth.
A.
TRUE
B.
FALSE
Question #3
Which of the following items is illegal under the tax law?
A.
Tax avoidance
B.
Deferring income
C.
All of the choices are legal
D.
Accelerating deductions
E.
Tax evasion
Question #4
The assignment of income doctrine most likely limits which of the following strategies?
A.
Conversion
B.
Income shifting
C.
Timing
D.
Tax minimization
E.
None of the choices are correct.
Question #5
The present value concept becomes more important as interest rates increase.
A.
TRUE
B.
FALSE
Question #6
Which of the following strategies exploits the fact that tax rates vary by activity (e.g., income type)?
A.
Timing
B.
Income shifting
C.
Conversion
D.
Evasion
E.
Present value
Question #7
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.
25.00%
B.
33.50%
C.
27.30%
D.
31.20%
E.
None of the choices are correct.
Question #8
The conversion strategy becomes more important as interest rates increase.
A.
TRUE
B.
FALSE
Question #9
A common income shifting strategy is to:
A.
Invest in tax exempt bonds.
B.
Shift income from a high tax rate jurisdiction to a low tax rate jurisdiction.
C.
Shift income from a low tax rate jurisdiction to a high tax rate jurisdiction.
D.
Defer income.
Question #10
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.
15.87%
B.
6.30%
C.
10.00%
D.
8.00%
E.
None of the choices are correct.
Question #11
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 #12
If tax rates will be the same next year, the taxpayer should generally accelerate deductions.
A.
FALSE
B.
TRUE
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? Assuming dividends were reinvested each year and his marginal ordinary tax rate is 15%.
A.
$23,400
B.
$23,639
C.
$24,000
D.
$24,333
E.
None of the choices are correct.
Question #14
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)?
A.
$33,633
B.
$100,000
C.
$37,000
D.
None of the choices are correct.
E.
$36,040
Question #15
A.
Accelerating deductions.
B.
An employer providing tax free benefits to employees instead of salary.
C.
Deferring income.
D.
A high-tax rate parent employing her low-tax-rate son in the family business.
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