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| 1 | |
Generally, interest income is taxed at ordinary rates and dividend income is taxed at capital gains rates. |
| | A) | True |
| | B) | False |
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| 2 | |
An investment's time horizon affects the after-tax rate of return on investments taxed annually. |
| | A) | True |
| | B) | False |
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| 3 | |
When a taxable bond is issued at a discount, taxpayers are required to amortize the discount and reduce the amount of interest reported in the current year by the amount of current year original issue discount amortization. |
| | A) | True |
| | B) | False |
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| 4 | |
Qualified dividends received by individuals are taxed at either a 0 percent, a 15 percent, or a 20 percent preferential rate. |
| | A) | True |
| | B) | False |
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| 5 | |
The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term gains and losses, (2) net long-term gains and losses, and (3) net the outcome of steps (1) and (2) if they are of similar sign. |
| | A) | True |
| | B) | False |
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| 6 | |
Dave and Jane file a joint return. They sell a capital asset at a $140,000 loss. Even though they have no capital gains, $3,000 of the loss can still be deducted in the current year if they have at least $3,000 of ordinary income. |
| | A) | True |
| | B) | False |
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| 7 | |
Investors must consider illicit taxes as well as explicit taxes in order to make correct investment choices. |
| | A) | True |
| | B) | False |
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| 8 | |
Generally, losses from rental activities are considered to be passive activity losses. |
| | A) | True |
| | B) | False |
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| 9 | |
Which of the following types of interest income is taxed as it is earned? |
| | A) | interest from U.S. Savings Bonds issued at a discount |
| | B) | accrued market premium on taxable bonds |
| | C) | accrued market discount on taxable bonds |
| | D) | interest from money market accounts |
| | E) | All of the above |
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| 10 | |
If John invested $20,000 in a stock paying annual qualifying dividends equal to 4% of his investment, what would the value of his investment be 5 years from now? Assume John's marginal ordinary tax rate is 15%. |
| | A) | $23,400 |
| | B) | $23,639 |
| | C) | $24,000 |
| | D) | $24,333 |
| | E) | None of the above |
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| 11 | |
In X8, Karl had the following capital gains (losses) from the sale of his investments: $6,000 LTCG, $30,000 STCG, ($12,000) LTCL, and ($18,000) STCL. What is the amount and nature of Karl's capital gains and losses? |
| | A) | $6,000 net short-term capital gain |
| | B) | $6,000 net long-term capital loss |
| | C) | $12,000 net short-term capital gain |
| | D) | $6,000 net short-term capital loss |
| | E) | None of the above |
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| 12 | |
Ms. Crocker bought 1,000 shares of EMO Corporation stock for $10,000 on January 20, 2011. On December 28, 2013 she sold all 1,000 shares of her EMO stock for $9,000. Based on a hot tip from her friend, she bought 1,000 shares of EMO stock on January 15, 2014 for $7,000. What is Ms. Crocker's recognized loss on her 2013 sale and what is her basis in her 1,000 shares purchased in 2014? |
| | A) | $0 LTCL and $7,000 basis |
| | B) | $0 LTCL and $8,000 basis |
| | C) | $1,000 LTCL and $7,000 basis |
| | D) | $1,000 LTCL and $8,000 basis |
| | E) | None of the above |
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| 13 | |
If an individual taxpayer's marginal tax rate is 33 percent and he holds the following assets for more than a year, which gains will be taxed at the lowest rate at the time of sale? |
| | A) | gains from a work of art |
| | B) | gains from personal-use property |
| | C) | gains from a coin collection |
| | D) | gains attributable to tax depreciation taken on real property |
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| 14 | |
What explicit tax rate would keep Orlando indifferent between purchasing a municipal bond with a 4.0 percent return and a taxable bond with a 5.5 percent before-tax return? |
| | A) | 25% |
| | B) | 27.3% |
| | C) | 31.2% |
| | D) | 33.5% |
| | E) | None of the above |
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| 15 | |
Investment interest expense includes: |
| | A) | interest expense from loans to purchase municipal bonds. |
| | B) | interest expense from loans to purchase corporate bonds. |
| | C) | interest expense from loans to purchase stocks. |
| | D) | A and B |
| | E) | B and C |
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