Taxation for Managers Exam Materials
Course Introduction
Taxation for Managers offers a comprehensive overview of key tax concepts and their practical implications for business decision-making. The course covers the fundamentals of corporate, personal, and indirect taxation, outlining how tax laws influence financial planning and management strategies. Students will learn to interpret tax regulations, explore strategies for minimizing tax liabilities, and assess the impact of taxation on various business structures and transactions. Emphasizing real-world applications, the course equips future managers with the analytical skills needed to incorporate tax considerations into corporate strategy, compliance, and reporting practices.
Recommended Textbook
Principles of Taxation for Business and Investment Planning 2019 22nd Edition by Sally Jones
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18 Chapters
1798 Verified Questions
1798 Flashcards
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Chapter 1: Taxes and Taxing Jurisdictions
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Sample Questions
Q1) Ad valorem property taxes are the major source of revenue for local governments.
A)True
B)False
Answer: True
Q2) Which of the following is/are not a primary source of authority for the tax law?
A) A revenue ruling published by the Internal Revenue Service
B) Section 162 of the Internal Revenue Code
C) Treasury Reg. §1.351-2
D) All of the above are primary sources of authority
Answer: D
Q3) A tax is intended to deter or punish unacceptable behavior.
A)True
B)False
Answer: False
Q4) The federal government does not levy property taxes or a general sales tax.
A)True
B)False
Answer: True
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3
Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) The Internal Revenue Service's cost of collecting $100 of tax revenue is about $3.
A)True
B)False
Answer: False
Q2) Assume that Congress plans to amend the federal income tax to provide a deduction for the cost of energy-efficient fluorescent light bulbs. Which of the following statements is true?
A) The amendment is intended to improve the efficiency of the tax.
B) The amendment is intended to improve the equity of the tax.
C) The amendment is intended to improve the simplicity of the tax.
D) The amendment is intended to improve the convenience of the tax.
Answer: A
Q3) Ms.Owen has $314,000 taxable income. Compute the tax on this income.
A) $29,680
B) $28,180
C) $37,680
D) None of the choices are correct.
Answer: B
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4
Chapter 3: Taxes as Transaction Costs
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Sample
Questions
Q1) Mr Vail made an offer to purchase a business for sale by Mr Craig. Mr Vail and Mr Craig had never met prior to their negotiation of the terms of the sale. The sale is an example of a/an:
A) Arm's length transaction
B) Private market transaction
C) Public market transaction
D) Both an arm's length transaction and a private market transaction are true.
Answer: D
Q2) Hower Inc.'s tax advisor recommends that the corporation take a deduction that the IRS has disallowed for other corporations in similar circumstances. If Hower decides not to take the deduction, it is reducing:
A) Audit risk
B) Tax law uncertainty
C) Business risk
D) None of the above
Answer: A
Q3) The tax law prohibits related party transactions.
A)True
B)False
Answer: False
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Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) Mr Bearne paid $50,000 to a local spiritual healer and deducted the payment as a business expense of his sole proprietorship. The healer provided personal counseling to Mr and Mrs Bearne. Upon audit of the sole proprietorship's accounting records, the IRS agent disallowed the deduction by applying the:
A) Business purpose doctrine
B) Assignment of income doctrine
C) Economic substance doctrine
D) Constructive payment doctrine
Q2) Which of the following statements about the jurisdiction variable is true?
A) Most businesses are subject to the taxing jurisdiction of more than one government.
B) For federal purposes, state income taxes are deductible in the computation of taxable income.
C) Businesses can often minimize total tax burden by conducting business in jurisdictions with favorable tax climates.
D) All of the above statements are true.
Q3) The assignment of income doctrine constrains tax deferral strategies.
A)True
B)False
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Chapter 5: Tax Research
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Sample Questions
Q1) When analyzing relevant legal authority:
A) The researcher is finished only when an unambiguous answer to the research question has been located.
B) Different sources of authority may provide conflicting answers.
C) Interpretation and judgment on the part of the researcher is rarely required.
D) The researcher should never give an unqualified answer to any research question.
Q2) Step 4 of the tax research process is to repeat steps 1 through 3 as many times as necessary.
A)True
B)False
Q3) Which of the following is not a secondary authority?
A) Tax textbook
B) Commercial tax service
C) Tax professional journal
D) Revenue procedure
Q4) Tax judicial decisions each have a single, unique citation.
A)True
B)False
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Chapter 6: Taxable Income from Business Operations
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Sample Questions
Q1) Pim Inc. operates a business with a natural annual operating cycle ending August 31. Which of the following can Pim adopt as its taxable year?
A) A calendar year.
B) Fiscal year ending June 30.
C) Fiscal year ending August 31.
D) Pim can adopt a calendar year or any fiscal year as its taxable year.
Q2) Which of the following statements describes a permanent book/tax difference?
A) An expense reported on the current income statement but deducted on next year's tax return
B) A revenue item included in current taxable income but not reported on the income statement until next year
C) An expense (or loss) is realized for book purposes but never recognized for tax purposes
D) A revenue item reported on the current income statement but not included in taxable income until an indefinite future year
Q3) An unfavorable temporary book/tax difference generates a deferred tax asset.
A)True
B)False
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8
Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) Broadus, a calendar year taxpayer, purchased a total of $128,300 tangible personalty in 2018. Broadus' taxable income without regard to a Section 179 deduction was $92,600. Which of the following statements is true?
A) Broadus can elect to expense only $92,600 of the cost of the personalty under Section 179.
B) Broadus can elect to expense the $128,300 cost of the personalty under Section 179 but can deduct only $92,600 of the expense.
C) Broadus can elect to expense only $35,700 of the cost of the personalty under Section 179.
D) Broadus can elect to expense the $128,300 cost of the personalty under Section 179 but can deduct only $35,700 of the expense.
Q2) Firms are allowed to deduct percentage depletion with respect to a productive asset even if the adjusted tax basis of the asset is zero.
A)True
B)False
Q3) Purchased goodwill is amortizable both for book and tax accounting purposes.
A)True B)False
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Chapter 8: Property Dispositions
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Sample Questions
Q1) The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.
A)True
B)False
Q2) The sale of business inventory always generates ordinary income or loss.
A)True
B)False
Q3) A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.
A)True
B)False
Q4) Philp Inc. sold equipment with a $132,900 adjusted tax basis for $200,000. The purchaser paid $20,000 in cash and assumed Philp's $180,000 mortgage on the asset. Compute Philp's net cash flow from the sale assuming a 21% tax rate.
A) $15,800
B) $20,000
C) -0-
D) None of the above
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Chapter 9: Nontaxable Exchanges
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Sample Questions
Q1) Compute OMG's gain recognized on the exchange and its tax basis in the property received from Babex.
A) $175,000 gain recognized; $514,500 basis in Babex property.
B) No gain recognized; $689,500 basis in Babex property.
C) No gain recognized; $514,500 basis in Babex property.
D) None of the choices are correct.
Q2) Compute M&W's recognized gain on its exchange of stock for property and determine M&W's tax basis in the property received from Mrs Brinkley.
A) No gain recognized; $111,700 tax basis in property
B) No gain recognized; $340,200 tax basis in property
C) $340,200 gain recognized; $111,700 tax basis in property
D) $111,700 gain recognized; $111,700 tax basis in property
Q3) Which of the following statements about like-kind exchanges is false?
A) Like-kind property must be held for either business or investment use.
B) Businesses cannot engage in like-kind exchanges of inventory.
C) Businesses cannot engage in like-kind exchanges of intangible assets.
D) Business cannot exchange undeveloped land for developed real estate.
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11
Chapter 10: Sole Proprietorships
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Sample Questions
Q1) Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership interest before any adjustment for this loss is $26,000. If Carter has no excess business loss, he may deduct the full partnership loss on his individual tax return.
A)True
B)False
Q2) During 2018, Scott Howell received a salary of $135,000. The social security base amount for 2018 was $128,400. How much payroll tax should have been withheld from Scott's salary for 2018?
A) $0
B) $10,328
C) $9,823
D) $9,919
Q3) Mr Dilly has expenses relating to a qualifying home office of $14,320. The taxable income generated by the business before any deduction of home office expenses was $13,700. His allowable home office deduction is $14,320.
A)True B)False
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Chapter 11: The Corporate Taxpayer
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Sample Questions
Q1) John's, Inc. manufactures and sells fine furniture. What is John's regular tax liability if it had taxable income of $40,000,000 for its fiscal year ended September 30, 2018?
A) $14,000,000
B) $9,800,000
C) $8,400,000
D) $11,200,000
Q2) The dividends-received deduction is equal to 65% of any dividends-received by a corporate taxpayer.
A)True
B)False
Q3) After 2017, a 100% dividends-received deduction is permitted for any dividends received from a foreign corporation.
A)True
B)False
Q4) At least three corporations are required to form an affiliated group.
A)True
B)False
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Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) Which of the following statements regarding the personal holding company tax is false?
A) The personal holding company tax is imposed in addition to the regular corporate income tax.
B) The personal holding company tax was originally enacted to discourage individuals from incorporating their investment portfolios.
C) The personal holding company tax is calculated by a qualifying corporation and paid on its annual corporate income tax return.
D) The personal holding company tax is assessed on a qualifying corporation's undistributed personal holding company income.
Q2) If a new business organized as a C corporation incurs start-up losses, the tax benefits of those losses will be recognized immediately.
A)True
B)False
Q3) If a business is formed as a regular corporation, the income may be subject to double taxation.
A)True
B)False
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Chapter 13: Jurisdictional Issues in Business Taxation
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110 Flashcards
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Sample Questions
Q1) A corporation is usually subject to tax by any state in which it engages in any business transactions.
A)True B)False
Q2) In the United States, corporations are subject only to taxes imposed by the federal government.
A)True B)False
Q3) Which of the following activities create state income tax nexus?
A) Selling products over the Internet to customers in the state. The products are delivered by U.S. mail.
B) Traveling salespersons soliciting orders for tangible goods from customers in the state.
C) Ownership of manufacturing and distribution facilities within the state.
D) All of the above activities create state income tax nexus
Q4) Multi-State, Inc. does business in two states. Its apportionment percentage in state A is 63%. Its apportionment percentage in the other state can be no more than 37%.
A)True B)False
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Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) The earned income credit offsets the burden of the federal payroll tax on low-income families and encourages individuals to seek employment rather than to depend on welfare.
A)True
B)False
Q2) The standard deduction is not deductible in the computation of alternative minimum taxable income.
A)True
B)False
Q3) Mr and Mrs Harvey's tax liability before credits was $1,675. Their income tax withholding was $1,050, and they are entitled to a $1,189 earned income credit. Which of the following statements is true?
A) The Harveys are entitled to a $1,050 tax refund.
B) The Harveys are entitled to a $1,189 tax refund.
C) The Harveys are entitled to a $564 tax refund.
D) The Harveys owe no additional tax but they are not entitled to a refund.
Q4) The majority of individual taxpayers take the standard deduction rather than itemizing.
A)True
B)False
Page 16
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Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Which of the following statements concerning qualified retirement plans is false?
A) Employer contributions to the plan are not included in the employees' gross income.
B) The plan is tax-exempt so that earnings can accumulate on a before-tax basis.
C) Employer contributions are deductible in the year of payment.
D) None of the above is false.
Q2) Six years ago, HOPCO granted Ms. Cardena a nonqualified option to purchase 1,000 shares of HOPCO stock at $12 per share. On date of grant, the market price was $10 per share. This year, Ms. Cardena exercised the option when the market price was $33 per share. Compute HOPCO's deduction resulting from the exercise.
A) $0
B) $12,000
C) $23,000
D) None of the above.
Q3) Vernon Inc. needs an additional worker on a multi-year project. Vernon could either hire an employee for a $72,000 annual salary or engage an independent contractor for a $75,000 annual fee. If Vernon's marginal income tax rate is 21%, which option minimizes the after-tax cost of obtaining the worker?
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Page 17
Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) Qualified dividend income earned by individual taxpayers is taxed at a maximum income tax rate of 20%.
A)True
B)False
Q2) Ten years ago, Elaine paid $10 per share for 2,000 shares of Lazlo common stock. This year, Elaine learned that Lazlo is in bankruptcy and can pay only 40% of its outstanding debt. What are the tax consequences to Elaine of Lazlo's bankruptcy?
A) $20,000 long-term capital loss
B) $12,000 long-term capital loss
C) $20,000 ordinary loss
D) No gain or loss
Q3) Mr and Mrs Golding own 13,850 shares in PTJ mutual fund. This year, they received a $6,390 cash distribution from PTJ. Which of the following statements is false?
A) Some or all of the distribution may be a capital gain distribution.
B) Some or all of the distribution may be a qualified dividend.
C) Some or all of the distribution may be ordinary income.
D) None of the above is false.
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Page 18
Chapter 17: Tax Consequences of Personal Activities
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Sample Questions
Q1) This year, David paid his physician $6,200 for routine examinations and lab tests and received a $3,000 reimbursement from his medical insurance company. David is allowed to deduct the $3,200 unreimbursed medical expense as an above-the-line deduction.
A)True
B)False
Q2) Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.
A)True
B)False
Q3) Which of the following expenditures is not a medical expense for federal tax purposes?
A) Payment for eyeglasses
B) Health insurance premiums
C) Payment for prescription antibiotics
D) All of the above are deductible medical expenses
Q4) Losses realized on the sale of personal use assets are deductible.
A)True
B)False
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Chapter 18: The Tax Compliance Process
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Sample Questions
Q1) Both individual and corporate taxpayers must pay any balance due of their tax by the extended due date of the tax return for the year.
A)True
B)False
Q2) Which type of audit has the broadest scope and may involve a complete analysis of the taxpayer's accounting records?
A) Correspondence examination
B) Office examination
C) Field examination
D) All of the above
Q3) A taxpayer who is disputing a deficiency of $50,000 or less may request an informal hearing by the Small Tax Case Division of the Tax Court.
A)True
B)False
Q4) An individual who didn't graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate.
A)True
B)False
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