Multiple choice questions Question 1.
In finance we refer to the market for short-term government and corporate debt securities as the __________ market. money capital primary secondary Question 2.
Which of the following would generally have unlimited liability? A limited partner in a partnership. A shareholder in a corporation. The owner of a sole proprietorship. A member in a limited liability company (LLC). Question 3.
The Chance Dice Corporation had taxable income (excluding capital gains) of $16 million. Under the Revenue Reconciliation Act of 1993, the firm's $10,000 of realized capital gains will be taxed at __________. 39 percent 35 percent 34 percent the average tax rate of the firm Question 4.
A corporation in the U.S. estimates and pays it taxes __________. monthly quarterly semi-annually annually Question 5.
The average tax rate is equal to the __________. total tax liability divided by taxable income rate that will be paid on the next dollar of taxable income median marginal tax rate percentage increase in taxable income from the previous period Question 6.
Accounting.com has purchased 3-year class equipment for $100,000. It uses the MACRS method of depreciation. What is tax depreciation for the fourth year? $0 $7,410 $25,000 $33,333 Question 7.
In finance we refer to the market where existing securities are bought and sold as the __________ market.
money capital primary secondary Question 8.
Which of the following is not an example of a financial intermediary? Wisconsin S&L, a savings and loan association. Strong Capital Appreciation, a mutual fund. Microsoft Corporation, a software firm. College Credit, a credit union. Question 9.
How are funds allocated efficiently in a market economy? The economic unit that considers itself most in need of funds receives funds first followed by those who are less in need. Receipt of funds is rotated over time so that each economic unit can receive them in turn. The largest economic units receive the funds first followed by smaller firms if sufficient funds are available. The economic unit that is willing to pay the highest expected return for a given risk level receives the funds. Question 10.
What mechanism ensures that large firms who benefit from tax laws pay some minimum amount of tax? Annual minimum tax. Alternative minimum tax. Minimum tax law. Corpulent minimum tax. Question 11.
A profitable firm would prefer to use which of the following methods of depreciation -- for tax purpose -- for a given depreciable asset, all else equal? Straight-line. Double-declining-balance. Modified accelerated cost recovery system. All of the above techniques are equally useful for a profitable firm because they provide the same tax deductions over the life of the asset. Question 12.
A major disadvantage of the corporate form of organization is the __________. double taxation of dividends inability of the firm to raise large sums of additional capital limited liability of shareholders limited life of the corporate form Question 13.
Which of the following examples would be deductible as an expense on the corporation's income statement? Interest paid on outstanding bonds.
Cash dividends paid on outstanding common stock. Cash dividends paid on outstanding preferred stock. All of the above. Question 14.
A corporation that receives $1,000 in dividends from another corporation, of which they have owned 10% for one full year, will be taxed on how much of those dividends? All $1,000 of the dividends. None of the dividends since it is from another corporation. $100 (10% of $1,000) since they owned a 10% position for at least 6 months. $300 (30% of $1,000) since 70% of dividends is tax exempt. Question 15.
In finance we refer to the market where new securities are bought and sold for the first time as the __________ market. money capital primary secondary Question 16.
Limited liability companies (LLCs) generally possess no more than two of the following four (desirable) characteristics: (1) limited liability, (2) centralized management, (3) unlimited life, and (4) the ability to transfer ownership interest without prior consent of the other owners. The two characteristics most likely to be absent in LLCs are __________. limited liability and centralized management centralized management and unlimited life centralized management and the ability to transfer ownership interest without prior consent of the other owners unlimited life and the ability to transfer ownership interest without prior consent of the other owners
Question 17.
Which of the following is an advantage of a corporation that is not an advantage as a limited partner in a partnership? Limited liability. Easy transfer of ownership position. Double taxation. All of the above are advantages that the corporation has over the limited partner. Question 18.
Which of the following statements is correct for a sole proprietorship? The sole proprietor has limited liability. The sole proprietor can easily dispose of their ownership position relative to a shareholder in a corporation. The sole proprietorship can be created more quickly than a corporation. The owner of a sole proprietorship faces double taxation unlike the partners in a partnership. Question 19.
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Unlimited liability. Single tax filing. Difficult ownership resale. Raising capital. Question 20.
In finance we refer to the market for relatively long-term financial instruments as the __________ market. money capital primary secondary Question 21.
Limited liability companies (LLCs) generally possess no more than two of the following four (desirable) characteristics: (1) limited liability, (2) centralized management, (3) unlimited life, and (4) the ability to transfer ownership interest without prior consent of the other owners. Which of the following forms of business organization in the U.S. generally possesses all four of these characteristics? General partnership. Limited partnership. Corporation. None of the above.
True or false questions Question 1.
In a sole proprietorship, the owner is personally responsible for all financial obligations of the firm.
Question 2.
A mortgage banker is a financial institution that underwrites new securities for resale. Question 3.
The purpose of financial markets is to facilitate savers depositing funds with financial intermediaries. Question 4.
The New York Stock Exchange (NYSE) is part of the secondary market for long-term securities. Question 5.
U.S. Treasury securities are usually regarded as default free.
Essay Question:
Last year Sweet Stuff Candy Corporation earned $172,000 before interest and taxes. The firm paid $22,000 in interest charges and $48,000 in dividends. What is its taxable income? What is its tax liability?
