Consider the Following Methods of Taxing a Corporation's Income

question 81

Multiple Choice

Consider the following methods of taxing a corporation's income:
A.A flat tax, as opposed to a progressive tax, is levied on corporate profits.
B.A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits.The shareholder would then be required to include this amount as taxable income for her personal income tax.The corporation does not pay a tax.
C.A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains.
Which of the methods above would avoid double taxation?

• A)a, b, and c
• B)a and b only
• C)a and c only
• D)b and c only

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Definitions:

Semiannually Compounded

A method of compounding interest where the calculation and addition of interest occur twice a year.

Compounded Quarterly

The process in which interest is calculated on the principal and the accumulated interest over a quarter (three months) and is added to the principal for calculating future interest.

Accrued Interest

Interest that has accumulated over a period but has not yet been paid or officially recorded.

Nominal Interest

The stated interest rate of a loan or investment, not accounting for inflation or compounding effects.