Consider a $4 Excise Tax That Has Been Levied on Suppliers

question 27

Multiple Choice

Consider a $4 excise tax that has been levied on suppliers of automobile tires.Legislators,in the interest of fairness,change the law so that the tax is evenly split between suppliers and demanders,with each group legally required to pay $2 per tire.In this situation,we can predict that

• A) suppliers will be made better off and demanders will be made worse off.
• B) the change will have no economic effect on suppliers and demanders.
• C) demanders will "pass back" their share of the tax to the suppliers,so that suppliers continue to pay $4 per tire.
• D) the economic incidence of the tax will be evenly split between suppliers and demanders.

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Definitions:

Accrued Interest

Interest that has been earned but not yet received or recorded as income by the end of the accounting period.

Journal Entry

A record in accounting that logs the debit and credit sides of a financial transaction.

Deposits In Transit

Funds that have been deposited in a bank account but not yet recorded by the bank, leading to a difference between the company's records and the bank statement.

Outstanding Checks

Checks that have been written and recorded in the issuing company's books but have not yet been cleared by the bank.