CPA REG Practice Exam 1

Which of the following acts constitutes grounds for a tax preparer penalty?

A CPA charged a client $150 for preparing the client's current year tax return that resulted in a $2,000 refund for the client. The client elected to receive the tax refund in the form of a check and would prefer to pay the CPA out of the refund check. Which one of the following statements is correct with regard to an Internal Revenue Code penalty for endorsing and cashing a client's refund check?

Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?

A civil fraud penalty can be imposed on a corporation that underpays tax by

A tax return preparer is researching authorities to support a position of deferral of gain taken on the disposal of an asset. Which of the following will provide the highest authority for this position?

Which of the following statements is correct concerning a penalty for a tax return preparer who understates a taxpayer's liability?

Which of the following is not under the jurisdiction of the Internal Revenue Service?

If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who are unknown to the CPA under the law of

Phillips, CPA, was engaged by Veda, Inc. to audit Veda's financial statements. Phillips was told that the financial statements and the audit report were to be shown to Ryan, a potential investor. As a result of the audit, Phillips issued an audit report containing an unqualified opinion on Veda's financial statements. Ryan, after seeing the financial statements and audit report, made a substantial investment in Veda shares. Although Phillips exercised reasonable care in performing the audit, inaccuracies in the financial statements were later discovered, causing Veda share prices to fall. Ryan claimed that had Ryan known of the inaccuracies, Ryan would not have purchased the shares. Will Ryan succeed in a suit against Phillips for negligence?

Which of the following pairs of elements must a client prove to hold an accountant liable for common law fraud?

Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client's financial report be liable?

Which of the following statements concerning an accountant's disclosure of confidential client data is generally correct?

Which of the following transactions correctly illustrates the doctrine of substantial performance?

Which of the following contract rights can generally be assigned?

A CPA is auditing the financial statements of XYZ Corp. During the audit of XYZ's invoices, the CPA discovers four invoices pertaining to transactions that took place before the end of the year under audit. None of the four invoices have been recorded in XYZ's financial records. Which of the following invoiced transactions requires an accrual of a liability based on the doctrine of substantial performance?

Under the Sales Article of the UCC, which of the following requirements must be met for a writing to be an enforceable contract for the sale of goods?

Which of the following statements applies to a sale on approval under the UCC Sales Article?

Grill deals in the repair and sale of new and used clocks. West brought a clock to Grill to be repaired. One of Grill’s clerks mistakenly sold West’s clock to Hone, another customer. Under the Sales Article of the UCC, will West win a suit against Hone for the return of the clock?

After which of the following situations would it usually not be necessary to notify third parties of the termination of an agency's existence?

Under agency law, which of the following statements best describes ratification?

Easy Corp. is a real estate developer and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts but are instructed to do so in their own names without disclosing Easy's identity or relationship to the transaction. If a broker enters into a contract with a seller on Easy's behalf.

Pix Co., which is engaged in the business of selling appliances, borrowed $18,000 from Lux Bank. Pix executed a promissory note for that amount and pledged all of its customer installment receivables as collateral for the loan. Pix executed a security agreement that described the collateral, but Lux did not file a financing statement. Which of the following is correct regarding the security interest?

On May 1, 20X1, two months after becoming insolvent, Quick Corp., an appliance wholesaler, filed a voluntary petition for bankruptcy under the provisions of Chapter 7 of the Federal Bankruptcy Code. On October 15, 20X0, Quick's board of directors had authorized and paid Erly $50,000 to repay Erly's April 1, 20X0 loan to the corporation. Erly is a sibling of Quick's president. On March 15, 20X1, Quick paid Kray $100,000 for inventory delivered that day. Quick's payment to Kray would

A voluntary petition filed under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code

Xylo, a calendar-year C corporation, acquired the assets of Yerkes, also a calendar-year C corporation, on March 1 of the current year. One of the assets acquired was a trademark to which Xylo properly allocated $1,200,000 of the purchase price. What is Xylo's amortization deduction for the current year?

A taxpayer purchased and placed into service a $1,690,000 piece of equipment. The equipment is 7-year property having a 14.29% applicable depreciation rate for the first year. The taxpayer is making a Section 179 election but is elected out of any bonus depreciation. Assume that the maximum Section 179 limit is $1,020,000 and the threshold is $2,550,000. Before considering any depreciation deduction, the taxpayer had $2,700,000 of taxable business income. What is the maximum amount of cost recovery deduction this year?

A taxpayer gave a gift of land worth $90,000 to a cousin. The land's original cost to the taxpayer was $30,000. As a result of the transfer, the taxpayer paid a gift tax of $12,000. Assuming an annual gift exclusion of $15,000, what is the cousin's basis in the land?

A land developer traded some business assets during the year. Which of the following exchanges would qualify as a like-kind exchange?

For an individual business owner, which of the following would typically be classified as a capital asset for federal income tax purposes?

On July 1, Year 4, a donor gave a taxpayer a gift of stock worth $19,000. The donor purchased the stock for $20,000 in Year 1. On November 1, Year 4, the taxpayer sold the stock to an unrelated party for $18,500. What is the amount and character of the taxpayer's gain or loss upon the sale?

On May 1, Year 2, a taxpayer was bequeathed 500 shares of common stock. The deceased relative had paid $2,500 for the stock in Year 0. Fair market value of the stock on May 1, Year 2, the date of death, was $4,000, which increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes, and the taxpayer has not sold the stock. How much income should the taxpayer report for the inheritance of the 500 shares of stock in the Year 2 individual income tax return?

On June 1, Year 3, a taxpayer gave a friend a gift of stock worth $10,000. No gift tax was paid on the transaction. The taxpayer had purchased the stock for $7,500 in Year 1. On October 1, Year 3, the friend sold the stock to an unrelated party for $11,000. What are the amount and character of the friend's gain on the sale in Year 3?

On July 1, 20X2, Quick, Onyx, and Nash were deeded a piece of land as tenants in common. The deed provided that Quick owned 1/2 the property and Onyx and Nash owned 1/4 each. If Nash dies, the property will be owned as follows:

Which of the following statements is correct regarding the Federal Unemployment Tax Act?

Generally, in addition to being in writing, a real estate mortgage must

Which of the following is a defect in marketable title to real property?

Which of the following statements about treatment of net passive activity losses of an individual is correct?

A taxpayer had AGI of $60,000 in Year 1. During the same year, the taxpayer incurred $10,000 in qualifying unreimbursed medical expenses, all which were charged to a credit card. The taxpayer paid off $7,000 of the credit card charges by December 31 of Year 1. What amount may the taxpayer deduct as an itemized deduction for medical expenses?

ABC Foundation awarded Keisa $75,000 in recognition of lifelong literary achievement. Keisa was selected for the award by DAC without any action on Kesia's part. She was not required to render future services as a condition to receive the $75,000. Pursuant to Kesia's designation, DAC paid $30,000 of the award to a qualified charitable organization. What amount of the award, if any, would be included in Kesia's gross income?

Blake, a single individual age 67, had a 20X1 adjusted gross income of $60,000 exclusive of social security benefits. Blake received social security benefits of $8,400 and interest of $1,000 on tax-exempt obligations during 20X1. What amount of social security benefits is excludible from Blake's 20X1 taxable income?

U Company, a sole proprietorship, had cash purchases and payments on account during the current year totaling $455,000. U's beginning and ending accounts payable balances for the year were $64,000 and $50,000, respectively. What amount represents U's accrual-basis purchases for the year?

Porter was unemployed for part of the year. Porter received $35,000 of wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer's company-paid supplemental unemployment benefit plan. What is the amount of Porter's gross income?

Baker, a sole proprietor CPA, has several clients that do business in Spain. While on a four-week vacation in Spain, Baker took a five-day seminar on Spanish business practices that cost $700. Baker’s round-trip airfare to Spain was $600. While in Spain, Baker spent an average of $100 per day on accommodations, local travel, and other incidental expenses, for total expenses of $2,800. What amount of educational expense can Baker deduct on Form 1040 Schedule C, “Profit or Loss From Business”?

Robbe, a cash basis single taxpayer, reported $50,000 of adjusted gross income last year and claimed itemized deductions of $5,500, consisting solely of $5,500 of state income taxes paid last year. Robbe's itemized deduction amount, which exceeded the standard deduction available to single taxpayers for last year by $1,150, was fully deductible and it was not subject to any limitations or phase-outs. In the current year, Robbe received a $1,500 state tax refund relating to the prior year. What is the proper treatment of the state tax refund?

An individual paid $5,000 in self-employment taxes throughout the year. What amount is the allowable adjustment to income related to self-employment tax?

An individual recently started operating a flower shop as a proprietorship. In its first year of operations, the shop had a taxable income of $60,000. Assuming that the individual had no other employment-related earnings,

An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim

Which of the following tax credits can result in a refund even if the individual had no income tax liability?

Which of the following statements is correct regarding the deductibility of donations made to qualifying charities by a cash-basis individual taxpayer?

Slaton served 10 days on jury duty in year 13, for which Slaton was paid $25 per day by the county. Slaton's employer requires employees to remit to it all pay received by the county during jury duty, because Slaton's employer pays employees their normal compensation for the duration of jury duty. Slaton's W-2 income year 13 for $40,000. What should Slaton's adjusted gross income be for year 13?

"A married taxpayer, age 48, received the following in Year 1: Interest earned on federal Treasury bills $ 1,000 Interest earned on municipal bonds 2,500 Interest earned on state income tax refund 50 Interest earned on Series EE savings bonds, used to help pay for room and board for dependent in college 1,500 Given these facts, what total amount from the above should be included in gross income on the taxpayer's Year 1 tax return?"

For year 2, Quest Corp., an accrual-basis calendar-year C corporation, made an $8,000 charitable contribution. Quest's year 2 taxable income before the deduction for charitable contributions was $200,000. On December 12, year 2, Quest's board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 6, year 3. What is the maximum allowable deduction that Quest may take as a charitable contribution on its year 2 income tax return?

On the last day of Year 3, Calyx Corp. made a property distribution to its sole shareholder, Melver, in the form of property with an adjusted basis to Calyx of $30,000 and a fair market value of $40,000. Prior to the distribution, Melver's basis in Calyx was $60,000. Calyx's accumulated earnings and profits at the beginning of Year 3 was $5,000 and its current earnings and profits before the distribution was $20,000. How much of the property distribution to Melver is a nontaxable return of capital?

Feld, the sole stockholder of Maki Corp., paid $50,000 for Maki's stock in Year 1. In Year 6, Feld contributed a parcel of land to Maki but was not given any additional stock for this contribution. Feld's basis for the land was $10,000, and its fair market value was $18,000 on the date of the transfer of title. What is Feld's adjusted basis for the Maki stock?

If a corporation incurs $8,000 of organizational costs, the costs:

Pope, a C corporation, owns 15% of Arden Corporation. Arden paid a $3,000 cash dividend to Pope. What is the amount of Pope's dividends received deduction?

Beck Corp. has been a calendar-year S corporation since its inception on January 2, Year 5. On January 1, Year 8, Green and Blue each owned 50% of the Beck stock, in which their respective tax bases were $12,000 and $9,000. For the year ended December 31, Year 8, Beck had $81,000 in ordinary business income and $10,000 in tax-exempt income. Beck made a $51,000 cash distribution to each shareholder on December 31, Year 8. What was Green's tax basis in Beck after the distribution?

Which of the following conditions would prevent a corporation from qualifying as an S corporation?

An S corporation must separately pass through all of the following items to its shareholders except

An S corporation engaged in manufacturing has a year end of June 30. Revenue consistently has been more than $26 million under both the cash and accrual basis of accounting. The stockholders would like to change the tax status of the corporation to a C corporation using the cash basis with the same year end. Which of the following statements is correct if it changes to a C corporation?

HDF, a calendar year corporation, began business in Year 1. HDF made a valid S corporation election on December 1, Year 2. Assuming the eligibility requirements for S corporation status continued to be met throughout Year 3, on which of the following dates did HDF's S corporation status become effective?

Brown, a 50% partner in Brown & White, received a distribution of $12,500 in the current year. The partnership's income for the year was $25,000. What is the character of the payment that Brown received?

Smith received a one-third interest of a partnership by contributing $3,000 in cash, land, and a computer. The land has a fair market value of $5,000, and a cost of $2,000 and it is subject to a $900 mortgage. The computer has a fair market value of $2,000 and had an original cost of $2,500 and accumulated depreciation of $1,500. As a condition of the contribution, Smith paid off the mortgage on the land. Which of the following amounts represents Smith's basis in the partnership?

The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date

A partnership made a nonliquidating distribution to a partner. Which of the following lists the proper allocation order of the distributed assets accounted for by the distributee partner?

Reid, Welsh, and May are equal partners in the RWM partnership. Reid's basis in the partnership interest is $60,000. Reid receives a liquidating distribution of $61,000 cash and land with a fair market value of $14,000 and an adjusted basis of $12,000. What gain must Reid recognize upon the liquidation of the partnership interest?

Which of the following payments requires the filing of a gift tax return?

Pat created a trust, transferred property to this trust, and retained certain interests. For income tax purposes, Pat was treated as the owner of the trust. Pat has created which of the following types of trusts?

Which of the following is true regarding taxation of gift and estate transfers?

A $50,000 cash gift will reduce an individual's unified credit against gift tax if the gift is made to a

On January 1, Year 7, a taxpayer created a $300,000 trust that provided his mother with a lifetime income interest starting on January 1, Year 7, with the remainder interest to go to his son. The taxpayer expressly retained the power to revoke both the income interest and the remainder interest at any time. Who will be taxed on the trust's Year 7 income?

"Carr, Dunn, Evall, and Farr formed a general partnership. Their written partnership agreement provided that the profits would be divided so that Carr would receive 40%; Dunn, 30%; Evall, 20%; and Farr, 10%. There was no provision for allocating losses. At the end of its first year, the partnership had losses of $275,000. Before losses were allocated, the partners' capital account balances were: Carr, $150,000; Dunn, $110,000; Evall, $85,000; and Farr, $14,000. All partners agreed to contribute cash to restore any deficit capital account balance they may have. Ignore the effects of federal partnership tax law. After losses were allocated to the partners' capital accounts and all liabilities were paid, and before any deficit capital account balances were restored, the partnership's sole asset was $84,000 in cash. How much would Dunn receive on termination of the partnership?"

Which of the following rights is a holder of a public corporation's cumulative preferred stock always entitled to?

Which of the following parties is required to repay an illegal distribution made by a corporation?

Two CPAs organized their business as a general partnership. Which of the following advantages may have played a role in their selection of the general partnership form under the Revised Uniform Partnership Act?

Banner and Smythe merged their competing retail service businesses, each of which previously had been operated as a sole proprietorship. Neither Banner nor Smythe filed any paperwork with the state. They agreed to equally share profits, management rights, and co-ownership rights. What is the status of the merged business?