Question: When we calculate average and effective tax

> Amber is a tax expert, whereas Rob is a tax novice. Explain how their process in identifying tax issues may differ.

> In writing a research memo, what types of facts should be included in the memo?

> What is the difference between open and closed facts? How is this distinction important in conducting tax research?

> Locate the IRS Web site at http://www.irs.gov/. For every $100 the IRS collected, how much was spent on the IRS collection efforts? What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?

> Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent. If the income effect is in effect for all taxpayers, what average tax rate will re

> Lorenzo is considering starting a trucking company either in Texas or Oklahoma. He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business. What types of taxes may influence his decision of wh

> Jorge is puzzled that the IRS and his CPA could legitimately reach different conclusions on a tax issue. Why does this happen?

> What are some aspects of business that require knowledge of taxation? What are some aspects of personal finance that require knowledge of taxation?

> George and Weezy received $30,200 of Social Security benefits this year ($12,000 for George; $18,200 for Weezy). They also received $5,000 of interest from jointly owned City of Ranburne Bonds and dividend income. What amount of the Social Security benef

> Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Тахраyer Salary $10,000 Total Tax Marilyn $ 600 Kobe 20,000 3,000 Alfonso 30,000 6,000

> What factors have to be present for income shifting to be a viable strategy?

> Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Total Tax Тахрауеr Rajiv Salary $10,000 $600 LaMarcus 20,000 600 Dory 10,000 600

> Using the facts in the previous problem, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable with respect to the amount of tax paid? This would result in what type of tax rate structure? Facts in the previous prob

> Using the facts in the previous problem, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid? This would result in what type of tax rate structure? Facts in the previous problem Тахр

> What is the difference between primary and secondary authorities? Explain the role of each authority type in conducting tax research.

> Using the facts from the previous problem, what will happen to the government’s tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and earns only $75,000 in taxable income? What is

> Song earns $100,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such that Song’s average tax rate increases from 20 percent to 25 percent, how much

> Using the facts in the previous problem, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to effective tax rates?

> “The goal of tax planning is to minimize taxes.” Explain why this statement is not true.

> Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to average tax rates? Total Tax Тахраyer Mihwah Salary $10,000 50,000 Muni-Bond Interest $10,000 $600 Shameika 30,000 ?

> Using the facts in the previous problem, what interest rate does the state of New York need to offer to make Fergie indifferent between investing in the two bonds?

> Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she

> The IRS recently completed an audit of Shea’s tax return and assessed $15,000 additional tax. Shea requested an appeals conference but was unable to settle the case at the conference. She is contemplating which trial court to choose to hear her case. Pro

> Using the facts in the previous problem, what interest rate does Surething, Inc. need to offer to make Hugh indifferent between investing in the two bonds?

> Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest?

> Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax character

> Using the facts in the previous problem, if Scot and Vidia earn an additional $70,000 of taxable income, what is their marginal tax rate on this income? How would your answer differ if they, instead, had $70,000 of additional deductions?

> Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average ta

> What are the taxpayer’s standards to avoid the substantial understatement of tax penalty?

> Cameron purchases stock in Corporation X and in Corporation Y. Neither corporation pays dividends. The stocks both earn an identical before-tax rate of return. Cameron sells stock in Corporation X after three years and he sells the stock in Corporation Y

> Using the facts in the previous problem, if Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income? What is their marginal rate if, instead, they reported an additional $100,000 in deductions? Facts

> Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average

> Using the facts in the previous problem, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income? What is her marginal rate if, instead, she had $15,000 of additional deductions?

> Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. Using the U.S. tax rate schedule, how much federal tax will she owe? What is her average tax rate? What is her effective t

> Jackie has a corporate client that has recently received a 30-day notice from the IRS with a $100,000 tax assessment. Her client is considering requesting an appeals conference to contest the assessment. What factors should Jackie advise her client to co

> Identify some of the sources for tax professional standards. What are the potential ramifications of failing to comply with these standards?

> Using the facts in the previous problem, if Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? What is his marginal rate if, instead, he had $40,000 of additional deductions? Facts from previous problem Ch

> Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate

> “The federal income tax scores very high on the economy criterion because the current IRS budget is relatively low compared to the costs of a typical collection agency.” Explain why this statement may be considered wrong.

> Many years ago a famous member of Congress proposed eliminating federal income tax withholding. What criterion for evaluating tax systems did this proposal violate? What would likely have been the result of eliminating withholding?

> Clark owns stock in BCS Corporation that he purchased in January of the current year. The stock has appreciated significantly during the year. It is now December of the current year, and Clark is deciding whether or not he should sell the stock. What tax

> Compare the federal income tax to sales taxes using the “certainty” criterion.

> Discuss why evaluating vertical equity simply based on tax rate structure may be less than optimal.

> Montel argues that a flat income tax rate system is vertically equitable. Oprah argues that a progressive tax rate structure is vertically equitable. How do their arguments differ? Who is correct?

> What is the difference between horizontal and vertical equity? How do tax preferences affect people’s view of horizontal equity?

> What is the difference between the income and substitution effects? For which types of taxpayers is the income effect more likely descriptive? For which types of taxpayers is the substitution effect more likely descriptive?

> Campbell’s tax return was audited because she failed to report interest she earned on her tax return. What IRS audit selection method identified her tax return?

> Kobe strongly dislikes SUVs and is appalled that so many are on the road. He proposes to eliminate the federal income tax and replace it with a $50,000 annual tax per SUV. Based on the number of SUVs currently owned in the United States, he estimates the

> Benjamin recently bought a truck in Alabama for his business in Georgia. What different types of federal and state taxes may affect this transaction?

> What are the differences between an explicit and an implicit tax?

> Explain how implicit taxes may limit the benefits of the conversion strategy.

> Describe in general the process by which new tax legislation is enacted.

> What are the three committees that debate proposed tax legislation? What documents do these committees generate, and how might they be used?

> The state of Georgia recently increased its tax on a pack of cigarettes by $2.00. What type of tax is this? Why might Georgia choose this type of tax?

> What is stare decisis and how does it relate to the Golsen rule?

> What is the distinguishing feature of an excise tax?

> In researching a tax question, you find only one authority (a trial-level court opinion) that is directly on point. Which court would you least prefer to have heard this case and why?

> In choosing a trial-level court, how should a court’s previous rulings influence the choice? How should circuit court rulings influence the taxpayer’s choice of a trial-level court?

> Tyrone recently read a regulation that Congress specifically requested the IRS to issue. What type of regulation is this? How does this regulation’s authoritative weight compare to other regulations?

> Carlos has located a regulation that appears to answer his tax research question. He is concerned because the regulation is a temporary regulation. Evaluate the authoritative weight of this type of regulation. Should he feel more or less confident in his

> Arnold and Lilly have recently had a heated discussion about whether a sales tax is a proportional tax or a regressive tax. Lilly argues that a sales tax is regressive. Arnold counters that the sales tax is a flat tax. Who is correct?

> Ahmed does not have enough cash on hand to pay his taxes. He was excited to hear that he can request an extension to file his tax return. Does this solve his problem? What are the ramifications if he doesn’t pay his tax liability by April 15?

> Describe the differences between a proportional, progressive, and regressive tax rate structure.

> Agua Linda, Inc., is a calendar-year corporation. What is the original due date for the corporate tax return? What happens if the original due date falls on a Saturday?

> Describe the three different tax rates discussed in the chapter and how taxpayers might use them.

> Dontae stated that he didn’t want to earn any more money because it would “put him in a higher tax bracket.” What is wrong with Dontae’s reasoning?

> Compare and contrast the three types of tax law sources and give examples of each.

> If the general objective of our tax system is to raise revenue, why does the income tax allow deductions for charitable contributions and retirement plan contributions?

> Simon just received a 30-day letter from the IRS indicating a proposed assessment. Does he have to pay the additional tax? What are his options?

> Using the facts from the previous problem, how would your answer change if Latoya understated her income by 40 percent? How would your answer change if Latoya intentionally failed to report as taxable income any cash payments she received from her client

> Describe the differences between the three types of audits in terms of their scope and taxpayer type.

> Explain the difference between the DIF system and the National Research Program. How do they relate to each other?

> Explain why paying dividends is not an effective way to shift income from a corporation to its owners.

> Latoya filed her tax return on February 10th this year. When will the statute of limitations expire for this tax return?

> As part of its stock-based compensation package, on January 1, 2018, International Electronics granted restricted stock units (RSUs) representing 50 million $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equa

> For each of the following inventory errors occurring in 2018, determine the effect of the error on 2018’s cost of goods sold, net income, and retained earnings. Assume that the error is not discovered until 2019 and that a periodic inve

> The statement of retained earnings of Gary Larson Publishers is presented below. GARY LARSON PUBLISHERS Statement of Retained Earnings For the Year Ended December 31, 2018 ($ in millions) Retained earnings, January 1 ……………………………………………………………………………………. $20

> Below are three independent and unrelated errors. a. On December 31, 2017, Wolfe-Bache Corporation failed to accrue office supplies expense of $1,800. In January 2018, when it received the bill from its supplier, Wolfe-Bache made the following entry: b

> The accounting records of EZ Company provided the data below. Prepare a reconciliation of net income to net cash flows from operating activities. Net income …………………………………………………. $50,000 Depreciation expense ………………………………………. 7,000 Increase in inventory ……

> On January 1, 2018, Beilich Enterprises bought 20% of the outstanding common stock of Wolfe Construction Company for $600 million cash. Wolfe’s net income for the year ended December 31, 2018, was $300 million. During 2018, Wolfe declar

> Wilson Foods Corporation leased a commercial food processor on September 30, 2018. The five-year finance lease agreement calls for Wilson to make quarterly lease payments of $195,774, payable each September 30, December 31, March 31, June 30, with the fi

> American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2018, that permit executives to acquire 4 million of the company’s $1 par

> When determining the amount of cash paid for income taxes, what would be indicated by an increase in the deferred income tax liability account?

> In preparation for developing its statement of cash flows for the year ended December 31, 2018, Millennium Solutions, Inc. collected the following information: __________________________________________________($ in millions) Payment for the early exting

> Refer to the situation described in BE 21–5. What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2018, if it uses the indirect method? In BE 21–5 Agee Technology, Inc., i

> How would the acquisition of a building be reported on a statement of cash flows if purchased by issuing a mortgage note payable in addition to a significant cash down payment?

> Does the statement of cash flows report only transactions that cause an increase or a decrease in cash? Explain.

> When DeSoto Water Works purchased a machine at the end of 2017 at a cost of $65,000, the company debited Buildings and credited Cash $65,000. The error was discovered in 2018. What journal entry will DeSoto use to correct the error? What other step(s) wo

> At the end of 2017, Majors Furniture Company failed to accrue $61,000 of interest expense that accrued during the last five months of 2017 on bonds payable. The bonds mature in 2029. The discount on the bonds is amortized by the straight-line method. The

> Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $400 million on July 1, 2018, at a price of $380 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and Decembe

> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li

> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m

> Late in 2018, you and two other officers of Curbo Fabrications Corporation just returned from a meeting with officials of the City of Jackson. The meeting was unexpectedly favorable even though it culminated in a settlement with city authorities that you

> Mayfair Department Stores operates over 30 retail stores in the Pacific Northwest. Prior to 2018, the company used the FIFO method to value its inventory. In 2018, Mayfair decided to switch to the dollar-value LIFO retail inventory method. One of your re

> Webster Products, Inc., adopted the dollar-value LIFO method of determining inventory costs for financial and income tax reporting on January 1, 2018. Webster continues to use the FIFO method for internal decision-making purposes. Webster’s FIFO inventor

> Danville Bottlers is a wholesale beverage company. Danville uses the FIFO inventory method to determine the cost of its ending inventory. Ending inventory quantities are determined by a physical count. For the fiscal yearend June 30, 2018, ending invento

> Some inventory errors are said to be “self-correcting,” in that the error has the opposite financial statement effect in the period following the error, thereby “correcting,” the original account balance errors. Required: Despite this self-correcting fe

> Sometimes a business entity will change its method of accounting for certain items. The change may be classified as a change in accounting principle, a change in accounting estimate, or a change in reporting entity. Listed below are three independent, un

> Facebook Inc. included the following disclosure note in an annual report: Share-Based Compensation (in part) . . . . Compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized on a straight-line basis

> Direct Assurance Company revised the estimates of the useful life of a trademark it had acquired three years earlier. How should Direct account for the change?