Exam 2 Practice Exam - Answers (Summer 2016).pdf -...

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1 ACCT 308 – Summer 2016 Exam 2 Review This exam review is intended to give you an idea of the types of numerical questions that may be tested on the exam. There actual exam may vary in length and format and will contain conceptual questions in addition to numerical answer questions. Refer to the Exam Review handout for specifics regarding the number of questions and format of the actual exam format. Chapter 12 Questions 1. The three requirements for claiming the Child Tax Credit are: 1) _____________________ 2) _____________________ 3) _____________________ (1) Child must be under age 17; (2) child must be a US citizen; (3) child must be claimed as a dependent. 2. Melissa is a single taxpayer in the 25% marginal tax bracket. She has a total of $18,000 of expenses. She can either take an above-the-line deduction for the $18,000 expenses, or she can take a credit of $4,000; however, she cannot take both the credit and the deduction. Which should she choose and why? Would it matter if she was in the 15% bracket instead? Melissa should choose the deduction , because it produces a tax benefit of $4,500 ($18,000 x 25%), compared to the credit which would produce a tax benefit of $4,000. If her marginal tax bracket was 15% then the credit would be preferable; the deduction would only produce a tax benefit of $2,700 ($18,000 x 15%), compared to the credit of $4,000.