AICPA Released Questions REG 2015 Moderate

7/25/2019 AICPA Released Questions REG 2015 Moderate

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Please Note: These questions are released to the CPA Review providerswith the letter answer only (i.e. no explanation given).

This document contains copyrighted material from the American Institute ofCertified Public Accountants and is licensed to NINJA CPA Review for useby its customers only.

Answers are on Page 11.

1. The partnership of Rodgers & Higgs, CPAs, performed audits of AltCorp., a publicly-traded company, for the past several years. After issuingthe current year's audit report, the CFO of Alt confessed to havingcommitted fraud against Alt. Under which of the following statutes wouldthe investors most likely bring suit against Rodgers & Higgs?

Securities Act of 1933, if they can prove ordinary negligence.

Securities Act of 1933, if they can prove gross negligence.

Securities Exchange Act of 1934, if they can prove ordinary negligence.

Securities Exchange Act of 1934, if they can prove scienter .



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2. In which of the following circumstances would a tax return preparer beprohibited from disclosing a client's tax return information?

The information will be needed for a peer review.

The information will be provided in response to a court order.

The information will be provided to a section 501(c)(3) charity.

The information will be used to prepare state or local tax returns.

3. Under the Statements on Standards for Tax Services, what is a CPA'sresponsibility for verifying information furnished by the taxpayer or thirdparties?

A CPA need not make additional inquiries if the information furnishedappears to be incorrect, incomplete, or inconsistent with other facts knownto the CPA.

A CPA need not consider implications of information furnished if theinformation comes directly from a third party.

A CPA may, in good faith, rely on information furnished by the taxpayeror by third parties without verification.

A CPA should not refer to the taxpayer's previous tax returns unless the returns report transactions that affect the current tax period.



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4. Which of the following contractual assignments is prohibited?

The right to receive royalties.

The right to be insured under a liability insurance policy.

The right to receive installment payments.

The rights under an option contract.

5. Under which of the following circumstances would a promoter be

relieved of personal liability on contracts entered into while engaged informing a corporation?

When the bylaws of the corporation expressly adopt allpreincorporation contracts without novation.

When the corporation unknowingly accepts the benefits of the contract.

When the contracting party verbally agrees to relieve the promoter.

When the third party, the corporation, and the promoter enter into anagreement to substitute the corporation for the promoter.



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6. Under the Negotiable Instruments Article of the UCC, which of thefollowing defenses could be successfully asserted by the drawer of a draftagainst a holder in due course of that draft?

The drawer issued the draft to the payee because of the payee'sfraudulent representations concerning the value of the property the payeewas transferring to the drawer in return for the draft.

The drawer issued the draft as a gift to the original payee, without thedrawer receiving any consideration or value for it.

The drawer was discharged from the obligation in bankruptcy after the

issuance of the draft.

The drawer issued the draft as bearer paper, and it was transferred bythe original holder to the next holder without an endorsement.

7. The two equal shareholders of a C corporation are thinking of filing anelection to have the company treated as an S corporation. Which of the

following consequences is an advantage of this election?

The corporation's net operating loss carryovers from prior years areimmediately deductible by the shareholders.

The corporation's tax-free fringe benefits for the shareholders will bedeductible by the corporation.

The shareholders of the S corporation will be taxed only on distributionsfrom the corporation.

The corporation's capital losses can be claimed on the tax returns ofthe shareholders.



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8. Benson exchanged a van, used exclusively for business and with anadjusted basis of $100,000, for a new van with a fair market value of$120,000 and received $5,000 in cash. What amount of gain did Bensonrecognize from the transaction?

$0

$5,000

$20,000

$25,000

9. Which of the following items qualifies for treatment under Section 1231(Property Used in the Trade or Business and Involuntary Conversions)?

Copyright used in the business, held for 10 years.

Building used in the business, held for six months.

Machinery used in the business, held for eleven months.

Computer used in the business, held for four years.



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10. A personal services corporation may deduct payments made to owner-employees only in the year in which the

Corporation is formed.

Expense is accrued on the books and records of the corporation.

Corporation makes a valid S election.

Owner-employee includes it in income.

11. An individual taxpayer reports the following information:

U.S. Treasury bond income $ 100

Municipal bond income 200

Rental income 500

Investment interest expense 1,000

What amount of investment interest can the taxpayer deduct in the currentyear?

$100

$300

$800

$1,000



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12. As a result of a divorce, a taxpayer received the following during thecurrent year:

Cash from the property

settlement

$100,000

Child support 12,000

Alimony payments 30,000

What amount, if any, must be included in gross income for the currentyear?

$0

$30,000

$130,000

$142,000

13. Thompson's spouse died in year 1. Thompson did not remarry in year 2and lived alone the entire year. What is Thompson's year 2 filing status?

Married filing jointly.

Surviving spouse.

Head of household.

Single.





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16. Parent company X and subsidiary company Y file a calendar yearconsolidated federal income tax return. Company X reported a $120,000tax loss, which included a $10,000 dividend from Y. Company Y reported$140,000 of taxable income, which included $30,000 of dividends receivedfrom less than 20% owned stock investments. Neither company took intoaccount any applicable dividends received deduction. What is the group'sconsolidated tax loss for the year?

($1,000)

($4,000)

($11,000)

($20,000)

17. Which of the following is a disadvantage of a revocable trust?

The grantor will be subject to gift taxes on the transfer of property to thetrust.

The trust assets are subject to being probated upon the death of thegrantor.

The grantor loses power to control the trust funds for federal estate taxpurposes.

The trust is included in the gross estate of the grantor.



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18. IRC Section 263A requires the capitalization of certain indirect costsrelated to inventory when a qualifying business is manufacturing tangiblepersonal property. Which of the following costs is not required to becapitalized as part of this adjustment?

Marketing.

Recruiting.

Payroll.

Securities services.

19. A company terminated its S corporation status for the current tax year.When can the company reelect S status?

Immediately.

Third year from the current tax year.

Fifth year from the current tax year.

Cannot reelect in future.



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20. The CPA was preparing the financial statement for a limited liabilitycompany. To which of the following would the CPA's report be addressed?

Member.

Shareholder

General partner.

Limited partner.

Answers:

1. The partnership of Rodgers & Higgs, CPAs, performed audits of AltCorp., a publicly-traded company, for the past several years. After issuingthe current year's audit report, the CFO of Alt confessed to havingcommitted fraud against Alt. Under which of the following statutes wouldthe investors most likely bring suit against Rodgers & Higgs?

Securities Act of 1933, if they can prove ordinary negligence.

Securities Act of 1933, if they can prove gross negligence.

Securities Exchange Act of 1934, if they can prove ordinary negligence.

Securities Exchange Act of 1934, if they can prove scienter .



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2. In which of the following circumstances would a tax return preparer beprohibited from disclosing a client's tax return information?

The information will be needed for a peer review.

The information will be provided in response to a court order.

The information will be provided to a section 501(c)(3) charity.

The information will be used to prepare state or local tax returns.

3. Under the Statements on Standards for Tax Services, what is a CPA'sresponsibility for verifying information furnished by the taxpayer or thirdparties?

A CPA need not make additional inquiries if the information furnishedappears to be incorrect, incomplete, or inconsistent with other facts knownto the CPA.

A CPA need not consider implications of information furnished if theinformation comes directly from a third party.

A CPA may, in good faith, rely on information furnished by thetaxpayer or by third parties without verification.

A CPA should not refer to the taxpayer's previous tax returns unless the returns report transactions that affect the current tax period.



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4. Which of the following contractual assignments is prohibited?

The right to receive royalties.

The right to be insured under a liability insurance policy.

The right to receive installment payments.

The rights under an option contract.

5. Under which of the following circumstances would a promoter be

relieved of personal liability on contracts entered into while engaged informing a corporation?

When the bylaws of the corporation expressly adopt allpreincorporation contracts without novation.

When the corporation unknowingly accepts the benefits of the contract.

When the contracting party verbally agrees to relieve the promoter.

When the third party, the corporation, and the promoter enter intoan agreement to substitute the corporation for the promoter.



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6. Under the Negotiable Instruments Article of the UCC, which of thefollowing defenses could be successfully asserted by the drawer of a draftagainst a holder in due course of that draft?

The drawer issued the draft to the payee because of the payee'sfraudulent representations concerning the value of the property the payeewas transferring to the drawer in return for the draft.

The drawer issued the draft as a gift to the original payee, without thedrawer receiving any consideration or value for it.

The drawer was discharged from the obligation in bankruptcy

after the issuance of the draft.

The drawer issued the draft as bearer paper, and it was transferred bythe original holder to the next holder without an endorsement.

7. The two equal shareholders of a C corporation are thinking of filing anelection to have the company treated as an S corporation. Which of the

following consequences is an advantage of this election?

The corporation's net operating loss carryovers from prior years areimmediately deductible by the shareholders.

The corporation's tax-free fringe benefits for the shareholders will bedeductible by the corporation.

The shareholders of the S corporation will be taxed only on distributionsfrom the corporation.

The corporation's capital losses can be claimed on the tax returnsof the shareholders.



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8. Benson exchanged a van, used exclusively for business and with anadjusted basis of $100,000, for a new van with a fair market value of$120,000 and received $5,000 in cash. What amount of gain did Bensonrecognize from the transaction?

$0

$5,000

$20,000

$25,000

9. Which of the following items qualifies for treatment under Section 1231(Property Used in the Trade or Business and Involuntary Conversions)?

Copyright used in the business, held for 10 years.

Building used in the business, held for six months.

Machinery used in the business, held for eleven months.

Computer used in the business, held for four years.



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10. A personal services corporation may deduct payments made to owner-employees only in the year in which the

Corporation is formed.

Expense is accrued on the books and records of the corporation.

Corporation makes a valid S election.

Owner-employee includes it in income.

11. An individual taxpayer reports the following information:

U.S. Treasury bond income $ 100

Municipal bond income 200

Rental income 500

Investment interest expense 1,000

What amount of investment interest can the taxpayer deduct in the currentyear?

$100

$300

$800

$1,000



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12. As a result of a divorce, a taxpayer received the following during thecurrent year:

Cash from the property

settlement

$100,000

Child support 12,000

Alimony payments 30,000

What amount, if any, must be included in gross income for the currentyear?

$0

$30,000

$130,000

$142,000

13. Thompson's spouse died in year 1. Thompson did not remarry in year 2and lived alone the entire year. What is Thompson's year 2 filing status?

Married filing jointly.

Surviving spouse.

Head of household.

Single.



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14. Paige, a 25% shareholder in an S corporation, had a stock basis of$10,000 at the beginning of the year. The corporation had ordinary incomeof $200,000 for the year. There were no separately stated items. Paigereceived wages from the corporation of $25,000 and a distribution of$30,000. What was Paige's basis in the stock at year end?

$0

$5,000

$30,000

$35,000

15. Kline and Salomon form the KS Partnership as 50/50 partners. Klinecontributes equipment that has a fair market value of $60,000 and anadjusted basis of $45,000. In addition, the equipment is subject to a$10,000 loan that KS Partnership is assuming. What amount representsKline's initial basis in the partnership?

$35,000

$40,000

$45,000

$60,000



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16. Parent company X and subsidiary company Y file a calendar yearconsolidated federal income tax return. Company X reported a $120,000tax loss, which included a $10,000 dividend from Y. Company Y reported$140,000 of taxable income, which included $30,000 of dividends receivedfrom less than 20% owned stock investments. Neither company took intoaccount any applicable dividends received deduction. What is the group'sconsolidated tax loss for the year?

($1,000)

($4,000)

($11,000)

($20,000)

17. Which of the following is a disadvantage of a revocable trust?

The grantor will be subject to gift taxes on the transfer of property to thetrust.

The trust assets are subject to being probated upon the death of thegrantor.

The grantor loses power to control the trust funds for federal estate taxpurposes.

The trust is included in the gross estate of the grantor.



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18. IRC Section 263A requires the capitalization of certain indirect costsrelated to inventory when a qualifying business is manufacturing tangiblepersonal property. Which of the following costs is not required to becapitalized as part of this adjustment?

Marketing.

Recruiting.

Payroll.

Securities services.

19. A company terminated its S corporation status for the current tax year.When can the company reelect S status?

Immediately.

Third year from the current tax year.

Fifth year from the current tax year.

Cannot reelect in future.



, 4%'

20. The CPA was preparing the financial statement for a limited liabilitycompany. To which of the following would the CPA's report be addressed?

Member.

Shareholder

General partner.

Limited partner.

Documents

AICPA Released Questions REG 2015 Moderate