Two Families Who Live in Plains, GA Have Identical Incomes

question 139

Multiple Choice

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

• A)an application of the benefits principle of taxation.
• B)a violation of horizontal equity.
• C)a violation of vertical equity.
• D)an application of egalitarian tax rules.

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Definitions:

Accumulated Depreciation

The cumulative depreciation of an asset up to a single point in its life, reflecting its loss of value over time.

Withdrawals Account

An account used to record the amounts taken out of a business by its owner(s) for personal use.

Capital Balance

The amount of money invested in a company by its owners or shareholders, represented in the equity section of the balance sheet.

Accounting Period

The span of time at the end of which a company's financial performance is measured and reported.