Test Bank for Pearson's Federal Taxation, 2025 Comprehensive, 38th Edition by Richardson (All Chapters included)
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Tax Accounting
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Tax Accounting
Complete Test Bank for Pearson's Federal Taxation, 2025 Comprehensive, 38th Edition by Luke E. Richardson, Mitchell Franklin ; ISBN13: 9780135336533....INDIVIDUALS
1.An Introduction to Taxation
2.Determination of Tax
3.Gross Income: Inclusions
4.Gross Income: Exclusions
5.Property Transactio...
Pearson's Federal Taxation,
2025 Comprehensive,
38th Edition by Luke E. Richardson
Complete Chapters Test Bank
INDIVIDUALS &
CORPORATIONS
are included
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** All Chapters included
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PART-1 --> INDIVIDUALS (Ch18-Ch1) ---> Page 3 to 722
PART-2 --> CORPORATIONS (Ch15-Ch1) ---> Page 724 to 1252
,Pearson's Federal Taxation 2025: Individuals, 38e (Richardson)
Chapter I18: Taxes and Investment Planning
LO1: Investment Models
1) In the Current Model, investment earnings are taxed as they are earned.
Answer: TRUE
Explanation: In the Current Model, after-tax dollars are invested, and the earnings are taxed annually.
Page Ref.: I:18-2
Objective: 1
2) In the Deferred Model, both the initial investment dollars and the investment earnings are taxed at the
end of the investment period.
Answer: FALSE
Explanation: In the Deferred Model, after-tax dollars are invested, but earnings are not taxed until the
end of the investment period.
Page Ref.: I:18-2
Objective: 1
3) In the Exempt Model, the earnings are excluded from explicit taxation.
Answer: TRUE
Explanation: In the Exempt Model, the earnings are never taxed.
Page Ref.: I:18-2
Objective: 1
4) In the Pension Model, the initial investment is deductible or excludible from gross income, and
investment earnings are taxed currently.
Answer: FALSE
Explanation: The initial investment is deductible or excludible from gross income, and investment
earnings are taxed at the end of the investment period.
Page Ref.: I:18-2
Objective: 1
5) Savings accounts and money market funds are examples of investments taxed under the Current
Model.
Answer: TRUE
Explanation: Income is taxed annually under the Current Model.
Page Ref.: I:18-3 and I:18-4
Objective: 1
6) A single taxpayer earns a salary of $6,000. If he is taxed with a 10% flat rate, he has $5,400 of after-tax
dollars available to invest.
Answer: TRUE
Explanation: $6,000 (1.00 - .10) = $5,400.
Page Ref.: I:18-3; Example I:18-2
Objective: 1
, 7) A taxpayer in the 24% marginal tax bracket invests $1,000 of after-tax dollars at 10% interest before
taxes. At the end of year one, the taxpayer will have accumulated after-tax dollars of $1,076.
Answer: TRUE
Explanation: $1,000 + $1,000(.1)(1 - .24) = $1,076.
Page Ref.: I:18-4; Example I:18-3
Objective: 1
8) Investments conforming to the Current Model provide no deferral advantages because earnings are
taxed currently.
Answer: TRUE
Explanation: Under the Current Model, investment earnings are taxed each year.
Page Ref.: I:18-4
Objective: 1
9) The nondeductible traditional IRA is a classic example of the Pension Model.
Answer: FALSE
Explanation: It is an example of the Deferred Model. After-tax dollars are invested, but earnings are not
taxed until the IRA distributions are received.
Page Ref.: I:18-5
Objective: 1
10) In the Deferred Model, only after-tax dollars are invested.
Answer: TRUE
Explanation: Investment of after-tax dollars is a key characteristic of the Deferred Model.
Page Ref.: I:18-5
Objective: 1
11) The Deferred Model investment outperforms the Current Model investment if interest rates and tax
rates are constant over time because the interest on the Deferred Model investment grows tax free until
withdrawal.
Answer: TRUE
Explanation: Under the Deferred Model, investment earnings can compound without taxation so they
will outperform the Current Model where only after-tax investment earnings compound.
Page Ref.: I:18-7
Objective: 1
12) An investment in a growth stock which does not pay dividends is an example of the Exempt Model.
Answer: FALSE
Explanation: An investment in a growth stock is an example of the Deferred Model.
Page Ref.: I:18-8
Objective: 1
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