Taxation for Accountants Practice Questions
Course Introduction
This course provides an in-depth exploration of taxation principles and practices relevant to the accounting profession. Students will learn to navigate federal, state, and local tax systems, focusing on the preparation and analysis of individual, corporate, and partnership tax returns. Key topics include tax planning and compliance, tax research, income recognition, deductions, credits, and ethical considerations in tax practice. Through practical examples and case studies, students will develop the technical knowledge and analytical skills necessary to advise clients and ensure adherence to current tax laws and regulations.
Recommended Textbook Principles of Taxation for Business and Investment Planning 2014 17th Edition by Sally Jones
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Page 2
Chapter 1: Taxes and Taxing Jurisdictions
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Sample Questions
Q1) The potential for conflict among taxing jurisdictions is greatest for businesses operating on a global scale.
A)True
B)False
Answer: True
Q2) Acme Inc.'s property taxes increased by $19,000 this year. As a result, Acme eliminated $19,000 from its budget for the employee Christmas party. Who bears the incidence of the corporate tax increase?
A)Acme Inc.
B)Acme's customers.
C)Acme's employees.
D)Acme's shareholders.
Answer: C
Q3) Which of the following is an example of a transaction-based tax?
A)A tax on net business income.
B)An excise tax.
C)An estate tax on the transfer of assets at death.
D)Both B.and C.
Answer: D
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Page 3
Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.
A)True
B)False
Answer: False
Q2) The sales tax laws of many states exempt the purchase of groceries and prescription drugs from tax. Such exemptions are intended to improve the:
A)Convenience of the tax
B)Equity of the tax
C)Sufficiency of the tax
D)Neutrality of the tax
Answer: B
Q3) A static forecast of the revenue effect of a tax rate change assumes that the tax base does not change.
A)True
B)False
Answer: True
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Chapter 3: Taxes As Transaction Costs
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Sample Questions
Q1) The transacting parties can engage in bilateral tax planning when a transaction occurs in a:
A)Public market
B)Private market
C)Secondary market
D)None of the above
Answer: B
Q2) When the tax law applies differentially to transaction alternatives, decisions should focus on before-tax earnings.
A)True
B)False
Answer: False
Q3) Use the present value tables included in Appendix A of your textbook to compute the NPV of $12,500 received in year 5 at a 6% discount rate.
A)$8,745.5
B)$9,337.5
C)$9,900
D)None of the above
Answer: B
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Page 5
Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) A taxpayer may choose to accept a reduced market rate of return on an investment to take advantage of a tax preference associated with the investment. In such case, the taxpayer will pay a(n):
A)Excise tax
B)Explicit tax
C)Implicit tax
D)Transaction tax
Q2) Mrs. Bern's marginal tax rate is 33%, and her grandson Jeff's marginal tax rate is 10%. Which of the following statement is false?
A)The family could save 23 cents of tax for every dollar of deduction shifted from Jeff to Mrs.Bern.
B)The family could save 23 cents of tax for every dollar of income shifted from Mrs.Bern to Jeff.
C)Any income shift from Mrs.Bern to Jeff is constrained by the assignment of income doctrine.
D)None of the above is false.
Q3) The time period variable is based on the time value of money.
A)True
B)False
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Page 6
Chapter 5: Tax Research
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Sample Questions
Q1) Professional tax research conclusions should always be based on relevant secondary authority.
A)True
B)False
Q2) A keyword search using an electronic database is part of which step in the research process?
A)Understand the client's transaction and ascertain the facts
B)Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions
C)Locate relevant tax law authority
D)Analyze relevant authority and answer the research questions
Q3) Which of the following is not generally included in a tax research memorandum?
A)A statement of the pertinent facts
B)An analysis of the relevant sources of authority
C)The details of any advice given to the client as part of the research engagement
D)A bill for fees charged to the client for the research engagement
Q4) Tax research may occur as part of tax compliance or tax planning.
A)True
B)False
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Chapter 6: Taxable Income From Business Operations
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Sample Questions
Q1) The principle of conservatism reflected by GAAP is identical to the principle of conservatism reflected in the tax law.
A)True
B)False
Q2) A taxpayer that operates more than one business may use a different method of accounting for each business.
A)True
B)False
Q3) Jackey Company, a calendar year, accrual basis taxpayer, did not pay the $44,200 December rent on its commercial office space until January 8. As result, Jackey's accountant made a routine year-end accrual of $44,200 rent expense. Which of the following statements is true?
A)Jackey can deduct the $44,200 accrued rent expense.
B)Jackey can deduct the $44,200 expense in the year of payment.
C)The accrued rent expense results in a permanent book/tax difference.
D)The accrued rent expense results in a temporary book/tax difference.
Q4) Federal and state political lobbying expenses are nondeductible.
A)True
B)False
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Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) Uqua Inc. purchased a depreciable asset for $189,000. First-year depreciation for book purposes was $22,000, and first-year MACRS depreciation was $37,800. If Uqua's marginal tax rate is 35%, the excess tax depreciation results in a $5,530:
A)Deferred tax asset
B)Deferred tax liability
C)Permanent favorable book/tax difference
D)Permanent unfavorable book/tax difference
Q2) A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.
A)True
B)False
Q3) Hextone Inc., which has a 35% tax rate, purchased a new business asset. First-year book depreciation was $14,890, and first-year MACRS depreciation was $27,090. As a result of this book/tax difference, Hextone recorded a $4,270 deferred tax liability.
A)True
B)False
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Chapter 8: Property Dispositions
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Sample Questions
Q1) Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash. This was Rizzi's only asset sale during the year. The sale results in:
A)$42,000 unfavorable permanent book/tax difference
B)$42,000 unfavorable temporary book/tax difference
C)$42,000 favorable permanent book/tax difference
D)No book/tax difference
Q2) "Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa. The owner recently recognized a $43,500 gain on sale of the figurine. Which of the following statements is false?
A)If Diego Ossa was the seller, the gain is ordinary.
B)If a commercial art gallery that had held Tiny Dancer in its inventory was the seller, the gain is ordinary.
C)If a private collector who purchased Tiny Dancer from an art gallery was the seller, the gain is capital gain.
D)None of the above is false.
Q3) Because land is nondepreciable, it is always a capital asset.
A)True
B)False
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Chapter 9: Nontaxable Exchanges
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Sample Questions
Q1) Vandals destroyed a business asset owned by L&L Company. L&L's adjusted tax basis in the asset was $60,800, and the reimbursement from its property insurance company was $90,000. L&L must pay at least $60,800 for a replacement asset in order to defer gain recognition on the involuntary conversion.
A)True
B)False
Q2) Mr. Jamail transferred business personalty (FMV $187,000; adjusted tax basis $29,900) to J&K Inc. in exchange for J&K common stock. Which of the following statements is true?
A)If Mr.Jamail owns 14% of J&K's outstanding stock immediately after the exchange, he must recognize a $157,100 gain.
B)If Mr.Jamail owns 74% of J&K's outstanding stock immediately after the exchange, he must recognize a $157,100 gain.
C)If Mr.Jamail owns 81% of J&K's outstanding stock immediately after the exchange, he must recognize a $157,100 gain.
D)Statements a.and b.are true.
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11
Chapter 10: Sole Proprietorships, Partnerships, Llcs, and S
Corporations
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Sample Questions
Q1) Drake Partnership earned a net profit of $400,000. Four partners share profits and losses equally. No cash was distributed. The partners will report taxable income from the partnership on their personal income tax returns for the year.
A)True
B)False
Q2) A limited liability company is always taxed as a partnership, regardless of the number of its members.
A)True
B)False
Q3) Businesses must withhold payroll taxes from payments made to independent contractors and periodically remit such taxes to the state and federal governments.
A)True
B)False
Q4) The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her distributive share of partnership items.
A)True
B)False
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Chapter 11: The Corporate Taxpayer
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Q1) Which of the following statements regarding Schedule M-1 is true?
A)The corporate dividends-received deduction is reported on Line 8 of Schedule M-1.
B)A corporation incurring nondeductible fines and penalties would report those amounts on line 5 of Schedule M-1.
C)Line 2 of schedule M-1 should reflect the corporation's actual federal income tax liability for the current year.
D)A corporation realizing a current gain on a like-kind exchange that is deferred for tax purposes would not report that gain on Schedule M-1.
Q2) Slipper Corporation has book income of $500,000. Book income includes a $50,000 gain on the sale of equipment. The equipment originally cost $110,000 and was sold for $75,000. Accumulated book depreciation was $85,000; accumulated MACRS deprecation was $90,000. Based only on these items, compute Slipper's taxable income.
A)$505,000
B)$495,000
C)$555,000
D)$445,000
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Chapter 12: The Choice of Business Entity
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Q1) Which of the following statements concerning the differences in operating a business as a partnership or as an S corporation is true?
A)The S corporation form offers greater flexibility in allocating the income or loss among the owners.
B)The owners of an S corporation have unlimited personal liability for the debts of the business.
C)The owners of a general partnership have unlimited personal liability for the debts of the business.
D)All of the above are true statements.
Q2) Glover, Inc. had $350,000 of taxable income, all of which was personal holding company income. The corporation paid a dividend of $350,000 in November. The corporation will owe a personal holding company tax for the year.
A)True
B)False
Q3) The use of a corporation as a tax shelter is most effective when the corporate tax rate is significantly higher than the individual tax rate.
A)True
B)False
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Chapter 13: Jurisdictional Issues in Business Taxation
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Q1) The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.
A)True
B)False
Q2) The foreign tax credit is available for income taxes paid to a foreign country.
A)True
B)False
Q3) Which of the following statements concerning the nexus required for a state to tax income is false?
A)Maryland has nexus if the corporate headquarters is located in Baltimore.
B)Company-owned trucks driving through Arizona to deliver goods to customers residing in California creates nexus in Arizona.
C)Maine has nexus if a company has retail outlets located in Maine malls.
D)A New York corporation can send traveling salespeople into Massachusetts to solicit orders for tangible goods without creating nexus in Massachusetts.
Q4) This year, Plateau, Inc.'s before-tax income was $4,765,000. Plateau paid $310,000 income tax to state A and $130,000 income tax to state
B.a.Compute Plateau's federal taxable income and tax liability.
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Page 15
Chapter 14: The Individual Tax Formula
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Q1) Which of the following statements describing individual tax deductions is false?
A)Individuals can take both above-the-line and the standard deduction in the same year.
B)Individuals elect to itemize deductions in a tax year in which total itemized deductions exceed the standard deduction.
C)In a year in which an individual takes the standard deduction, any itemized deductions yield no tax benefit.
D)Individuals who pay self-employment tax can deduct the tax as an itemized deduction.
Q2) Which of the following statements regarding the calculation of regular tax liability is false?
A)The rate schedule for calculating regular tax liability depends on the taxpayer's filing status.
B)All taxpayer, regardless of the amount of their taxable income, pay a 10% tax on their first bracket of income.
C)The individual tax rate schedules are adjusted annually for inflation.
D)The tax brackets in the single rate schedule are one-half of the brackets in the married-filing-jointly rate schedule.
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Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Mr. and Mrs. Williams are the sole shareholders of Lessing, Inc., a regular corporation. Last year, Lessing employed the Williams' son and paid him a $50,000 salary. During a recent IRS audit, the revenue agent discovered that the son rarely shows up for work and spends most of his time playing golf. Which of the following statements is true?
A)The IRS can treat the $50,000 payment as a constructive dividend to the son.
B)The IRS can treat the $50,000 payment as a constructive dividend to Mr.and Mrs.Williams.
C)The IRS can disallow Lessing's $50,000 deduction for the son's salary.
D)Both B.and C.are true.
Q2) Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $5,500 to a traditional IRA.
A)True
B)False
Q3) Vernon Inc. needs an additional worker on a multiyear project. Vernon could either hire an employee for a $70,000 annual salary or engage an independent contractor for a $75,000 annual fee. If Vernon's marginal income tax rate is 34%, which option minimizes the after-tax cost of obtaining the worker?
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Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) If an investor sells some of the securities in a block but can't identify which ones were sold, she is presumed to have sold the securities with the latest acquisition date.
A)True
B)False
Q2) The cash surrender value of a life insurance policy is taxable to the policy beneficiary upon the death of the insured individual.
A)True
B)False
Q3) Which of the following statements about the individual capital gains and losses is false?
A)Gain on sale of Section 1231 depreciable real property is taxed at a 25% maximum rate.
B)Short-term capital gains are taxed as ordinary income.
C)Capital losses are deductible only against capital gains.
D)Nondeductible capital losses are carried forward for deduction against future capital gains.
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18
Chapter 17: Tax Consequences of Personal Activities
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Q1) Which of the following statements about the tax consequences of gambling is true?
A)Gambling winnings are not taxable, and gambling losses are not deductible.
B)Gambling losses are deductible as miscellaneous itemized deductions only to the extent of gambling winnings.
C)Gambling losses are deductible as itemized deductions only to the extent of gambling winnings.
D)Gambling winnings are taxable, but gambling losses are not deductible.
Q2) Alimony payments are included in the recipient's gross income.
A)True
B)False
Q3) A taxpayer must have owned and lived in a personal residence at least two of the last five years in order to qualify for the maximum exclusion of gain on sale of that residence.
A)True
B)False
Q4) Gifts are not included in the recipient's gross income.
A)True
B)False
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19
Chapter 18: The Tax Compliance Process a Present Value of
$1 B Present Value of Annuity of $1 C 2013 Income Tax Rates
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Q1) Ms. Hepp filed her 2012 Form 1040 on February 19, 2013. The return showed a $2,730 overpayment of tax, and Ms. Hepp received her refund check from the IRS on April 30. Which of the following statements is true?
A)The government will not pay Ms.Hepp any interest on her refund.
B)The government must pay Ms.Hepp interest on her refund for the period from February 20 until April 30.
C)The government must pay Mrs.Hepp interest on her refund for the period from April 16 until April 30.
D)The government must pay Mrs.Hepp interest on her refund for the period from January 1 through April 30.
Q2) Mr. Fiocchi filed his unextended 2012 Form 1040 on July 22, 2013, and had no reasonable cause for the delinquency. The return showed a $1,906 overpayment of tax (refund due). Compute Mr. Fiocchi's late-filing and late-payment penalty.
A)-0-
B)$191
C)$286
D)$381
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Page 20