Question : 71) A Laffer curve A) relates the marginal tax rate : 1384336

Economics

71) A Laffer curve

A) relates the marginal tax rate to the average tax rate.

B) relates the government’s total income-tax revenue to the average rate across all taxes.

C) relates the government’s sales-tax yield to the marginal tax rate.

D) shows that, for any tax, tax revenues reach a maximum at some tax rate below 100%.

E) shows that tax revenues reach a maximum when the marginal tax rate is zero.

72) Which of the following best describes the policy implications of a Laffer curve?

A) Policymakers should eliminate tax deductions and maximize revenue at any given tax rate.

B) Policymakers should eliminate tax loopholes and maximize revenue at any given tax rate.

C) Policymakers should carefully consider whether a given increase in tax rates would increase or decrease tax revenues.

D) Policymakers should avoid imposing taxes on income as they decrease the work incentive.

E) Policymakers should set the tax rate as low as possible to maximize tax revenue.

73) Consider a monopolist that is earning profits in the long run. If the government imposes a lump-sum tax on this monopolist (that is less than its profits), then

A) output would decrease and price to consumers would increase.

B) neither output nor price would change.

C) the output would remain the same while price increased.

D) the monopolist would cease production.

E) new firms would enter the industry.

74) An excise tax causes ________ because it distorts the relationship between ________.

A) allocative inefficiency; prices and marginal costs

B) allocative inefficiency; pre-tax price and the tax price

C) productive inefficiency; costs and output

D) market inefficiencies; prices of similar goods

E) voter resentment; income and ability to pay

75) The direct burden of a tax is ________. The excess burden reflects the ________.

A) the deadweight loss of the tax; the inefficiency of the tax

B) the amount paid by taxpayers; the amount paid by taxpayers in excess of the free-market price.

C) the costs of administering the tax; the amount paid by taxpayers

D) the costs of administering the tax; amount paid by taxpayers in excess of the free-market price.

E) the amount paid by taxpayers; allocative inefficiency of the tax

76) The excess burden of a tax reflects a reduction of

A) allocative inefficiency.

B) total tax revenues.

C) total economic surplus.

D) both equilibrium price and quantity.

E) economic profits generated in the economy.

77) Since corporate income taxes are levied on accounting profits and not economic profits, they tend to

A) favour the accounting profession as it boosts demand of their services.

B) introduce double taxation as individual shareholders also pay income tax on dividend income.

C) be efficient since economic profits are hard to assess.

D) be inefficient since they will affect the allocation of resources.

E) be inefficient since they fail to contribute substantially to federal revenues.

78) Possible implications of corporate income taxes being levied on accounting profits include

1) underinvestment in new machinery and equipment;

2) a lower rate of adoption of the latest technologies;

3) faster productivity growth.

A) 1 only

B) 2 only

C) 3 only

D) 1 and 2

E) 1 and 3

79) The excess burden of an excise tax

A) is the price the consumer must pay above the free-market price.

B) reflects the allocative efficiency of the tax.

C) is the deadweight loss created by the tax.

D) is the administrative cost of collecting the tax.

E) is the total cost imposed on the producer by the tax.

80) Suppose there is only one movie theatre in a town and the equilibrium price and quantity for movie admissions is $9 and 850 visits per week. Now suppose the government imposes a tax such that the new equilibrium price and quantity are $10.50 and 780 visits per week. What is the direct burden of this tax?

A) $0

B) $105

C) $1170

D) $1275

E) There is not enough information to know.

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July 1, 2023

P3-3: Income statement preparation On December 31, 2015, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During the year, she billed

$360,000 for her accounting services. She had two employees, a bookkeeper and a clerical assistant. In addition to her monthly salary of $8,000, Ms. Chen paid annual salaries of $48,000 and $36,000 to the bookkeeper and the clerical assistant, respectively.

Employment taxes and benefit costs for Ms. Chen and her employees totaled $34,600 for the year. Expenses for office supplies, including postage, totaled $10,400 for the year. In addition, Ms. Chen spent $17,000 during the year on tax-deductible travel and

entertainment associated with client visits and new business development. Lease payments for the office space rented (a taxdeductible expense) were $2,700 per month. Depreciation expense on the office furniture and fixtures was $15,600 for the year. During

the year, Ms. Chen paid interest of $15,000 on the $120,000 borrowed to start the business. She paid an average tax rate of 30% during 2015. a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2015. • b. Evaluate her 2015 financial performance.

P3-6: Balance sheet preparation Use the appropriate items from the following list to prepare in good form Mellark’s Baked Goods balance sheet at December 31, 2015.

P3-10: Statement of retained earnings Hayes Enterprises began 2015 with a retained

earnings balance of $928,000. During 2015, the firm earned $377,000 after taxes. From this amount, preferred stockholders were paid $47,000 in dividends. At year-end 2015, the firm’s retained earnings totaled $1,048,000. The firm had 140,000 shares of common

stock outstanding during 2015. a. Prepare a statement of retained earnings for the year ended December 31, 2015, for Hayes Enterprises. (Note: Be sure to calculate and include the amount of cash dividends paid in 2015.) b. Calculate the firm’s 2015 earnings

per share (EPS). c. How large a per-share cash dividend did the firm pay on common stock during 2015?

P3-16: Accounts receivable management An evaluation of the books of Blair Supply, which follows, gives the end-of-year accounts receivable balance, which

is believed to consist of amounts originating in the months indicated. The company had annual sales of $2.4 million. The firm extends 30-day credit terms. a. Use the year-end total to evaluate the firm’s collection system. b. If 70% of the firm’s sales occur

between July and December, would this information • affect the validity of your conclusion in part a? Explain. •

P3-18: Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm’s financial leverage

and financial risk. On the basis of the debt ratios for Creek, along with the industry averages (see the top of the next page) and Creek’s recent financial statements (following), evaluate and • recommend appropriate action on the loan request.

P3-20: Common-size statement analysis A common-size income statement for Creek Enterprises’ 2014 operations follows. Using the firm’s 2015 income statement presented in Problem 3–18, develop the 2015 common-size income statement and compare it with • the 2014

statement. Which areas require further analysis and investigation? •

P3-21: The relationship between financial leverage and profitability Pelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financial statement

values for each company follow. Use them in a ratio analysis that • compares the firms’ financial leverage and profitability.