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EXAMINATION I REVIEW QUESTIONS ACCOUNTING 305 TRUE/FALSE 1. Without the ratification of the Sixteenth Amendment to the U.S. Constitution, the Federal income tax on corporations would not be valid. ANS: F The Sixteenth Amendment validated the tax on individuals . The income tax on corporations previously had been sanctioned by the courts. PTS: 1 REF: p. 1-3 2. The Federal income tax on corporations generates more revenue than the Federal income tax on individuals. ANS: F Just the opposite is the case. PTS: 1 REF: Figure 1-1 3. The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith’s canon of convenience. ANS: T Pay-as-you-go refers to the withholding provisions applicable to wages and other types of income and adds convenience to the tax system. PTS: 1 REF: p. 1-4 4. State and local general sales taxes are examples of progressive taxes. ANS: F General sales taxes are examples of proportional taxes. PTS: 1 REF: Example 2 5. The Federal estate and gift taxes are examples of proportional taxes. ANS: F The Federal estate and gift taxes are progressive taxes. PTS: 1 REF: p. 1-5 6. Currently, the Federal income tax is less progressive than it has been in the past. ANS: T Currently, the Federal income tax has six rates. At one time, it had fifteen rates. PTS: 1 REF: p. 1-6 3-1
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Tax Determination; Exemptions; Overview of Property Transactions 3-2 7. Julie inherits her mother’s personal residence, which she converts to a furnished rent house. This change should affect the amount of ad valorem property taxes levied on the properties. ANS: T Conversion from residential to rental use will increase the taxes. Furthermore, Julie’s mother may have had a senior citizen exemption on the property, which will no longer be appropriate. Lastly, the furnishings in the rent house could now be subject to an ad valorem tax on personalty. PTS: 1 REF: p. 1-6 to 1-8 8. A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty . ANS: F By definition, a fixture becomes part of the real estate to which it is attached. PTS: 1 REF: p. 1-6 9. Cornelius converts his pleasure boat to a charter fishing boat. This is an example of personal use personalty becoming business use personalty. ANS: T REF: p. 1-7 | p. 1-8 | Footnote 8 10. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on personalty devoted to business use. ANS: T REF: p. 1-8 11. As the tax is difficult to avoid, many states levy an ad valorem tax on intangibles (e.g., stocks and bonds). ANS: F The statement is incorrect in several respects. First, the tax on intangibles is easily avoided (e.g., make use of an out-of-state broker). Second, very few (not many ) states impose such a tax. PTS:
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