CPA REG Practice Exam 3 Welcome to your CPA REG Practice Exam 3 This test is designed to prepare you mentally for the actual CPA REG Exam with the same number of (76 questions) and the same time allowed (90 minutes) as the actual exam. The CPA REG Exam is breakdown into five (5) Parts. Here are the Five (5) Domains of the CPA REG Exam with the weightage and number of questions in this practice exam: 1. Ethics, Professional Responsibilities and Federal Tax Procedures [12 Questions] - 10-20% 2. Business Law [12 Questions] - 10-20% 3. Federal Taxation of Property Transactions [12 Questions] - 12-22% 4. Federal Taxation of Individuals [15 Questions] - 15-25% 5. Federal Taxation of Entities [25 Questions] - 28-38% Please click NEXT to start your Free CPA REG Practice Exam right away. Best of Luck! 1. Which of the following situations would most likely be a violation of the Treasury Circular 230 solicitation guidelines by a CPA, assuming that there are no violations of federal or state laws or other rules? The CPA sends unsolicited e-mails to potential clients guaranteeing tax refunds from the Internal Revenue Service. The CPA mails solicitation letters, clearly identified as such, to randomly selected business firms from a local directory, disclosing how the firms were selected to be contacted. The CPA records a radio advertising broadcast that fails to disclose the fee charged for an initial consultation. The CPA advertises in a local newspaper as providing accounting and tax services without disclosing fee information. None 2. Which of the following would be required to register for a Preparer Tax Identification Number (PTIN)? A CPA preparing returns in exchange for services but receiving no monetary compensation. A CPA preparing returns for family and friends for no charge. A CPA preparing a return for an entity as an employee of that entity. A CPA's assistant who enters taxpayer data into an electronic tax return preparation system. None 3. Starr, CPA, prepared and signed Cox's current year federal income tax return. Cox informed Starr that Cox had paid doctors' bills of $20,000, although Cox actually had paid only $7,000 in doctors' bills during the year. Based on Cox's representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox's figures and Starr did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox's return, Starr is Liable to Cox for reimbursement of any interest on the underpayment of tax. Liable to the IRS for negligently preparing the return. Not liable to the IRS for any penalty or interest. Not liable to the IRS for any penalty but is liable to the IRS for interest on the underpayment of tax. None 4. While preparing a tax return for a new client and reviewing the client's prior-year return, a CPA noticed an error made by the client's former tax preparer. According to Treasury Department Circular 230, which of the following is the CPA specifically required to do in this case? Contact the tax preparer who made the error and suggest that an amended return be prepared for the client. Inform the client of the error and insist that the return be amended. Inform the client of the error and advise of the consequences. Advise the client to contact the tax preparer of the prior-year return. None 5. A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPA discovers an error. According to Treasury Circular 230, the CPA is required to Resign from the engagement if the client refuses to authorize filing an amended return. Prepare an amended return within 30 days of the discovery of the error. Promptly advise the client of the error. Reimburse the client if the error was the CPA's fault and resulted in a penalty over $500. None 6. An individual taxpayer rejected the IRS examiner's findings in an audit of the taxpayer's tax return. What will the IRS do in response to the taxpayer's rejection? Issue a 30-day letter. Begin immediate collection action. Issue a statutory notice of deficiency. Refer the case to the IRS Independent Office of Appeals. None 7. In a jurisdiction that has an accountant-client privilege statute, to whom may a CPA turn over working papers without a client's permission? Purchaser of the CPA's practice. State tax authorities. State court. State CPA society quality control panel. None 8. Thorp, CPA, was engaged to audit Ivor Co.'s financial statements. During the audit, Thorp discovered that Ivor's inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial. Ivor claimed accountant-client privilege to prevent Thorp from testifying. Which of the following statements is correct regarding Ivor's claim? Ivor can claim an accountant-client privilege only in states that have enacted a statute creating such a privilege. Ivor can claim an accountant-client privilege only in federal courts. The accountant-client privilege can be claimed only in civil suits. The accountant-client privilege can be claimed only to limit testimony to audit subject matter. None 9. Which of the following is true regarding who can sue an auditor for common law negligence? Unforeseeable third parties may sue an auditor for common law negligence. In states following the majority rule, foreseen parties may not sue an auditor for common law negligence. Foreseeable third parties may sue an auditor for common law negligence. Can sue the accounting firm for the loss of the loan because of the rule of privilege. None 10. A CPA will most likely be liable for negligence if the CPA Fails to correct errors discovered in the CPA's previously issued audit reports. Does not guarantee that the financial statements are free from any misstatements due to misappropriation of assets. Fails to disclaim fraud and negligence in the CPA's contract with the client. Does not warn the client's bank of fraud by the client's upper management. None 11. Which of the following statements is correct regarding a CPA's working papers? The working papers must be Transferred to a client's bank to help the client secure a loan even if the client has not given permission. Transferred permanently to the client if demanded. Turned over to a government agency that requests them as part of a criminal investigation. Turned over as part of an audit quality peer review process. None 12. Which of the following bodies establishes the rules governing continuing professional education requirements for CPAs? The American Institute of Certified Public Accountants. The National Association of State Boards of Accountancy. The state board of accountancy. The Public Company Accounting Oversite Board. None 13. Contracts to purchase which of the following cannot be assigned without consent of the other party to the contract? Vehicles. Real estate. Businesses. Personal services. None 14. 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. None 15. Master Mfg., Inc., contracted with Accur Computer Repair Corp. to maintain Master's computer system. Master's manufacturing process depends on its computer system operating properly at all times. A liquidated damages clause in the contract provided that Accur pay $1,000 to Master for each day that Accur was late responding to a service request. On January 12, Accur was notified that Master's computer system failed. Accur did not respond to Master's service request until January 15. If Master sues Accur under the liquidated damage provision of the contract, Master will Win, unless the liquidated damage provision is determined to be a penalty. Win, because under all circumstances a liquidated damage provision is determined to be a penalty. Lose, because Accur's breach was not material. Lose, because liquidated damage provisions violate public policy. None 16. ABC Corp. contracts with JCN Inc. to sell JCN 3,000 widgets under 60-day credit terms. The widgets are to be shipped to JCN's warehouse. The contract reads, "Shipping terms: FOB Destination. Buyer assumes risk of loss when Seller tenders goods to freight carrier." En route to JCN's warehouse, the carrier is involved in an accident and the widgets are destroyed. Under the UCC Sales Article, which company has legal title to the goods at the time of the accident? ABC Corp. because the shipping terms are FOB destination. JCN Inc. because the shipping terms are FOB destination. ABC Corp. because JCN has not yet paid for the widgets. JCN Inc. because the contract terms place risk of loss with the buyer. None 17. Under the Sales Article of the UCC, when a contract for the sale of goods stipulates that the seller ship the goods by common carrier "F.O.B. purchaser's loading dock," which of the parties bears the risk of loss during shipment? The purchaser, because risk of loss passes when the goods are delivered to the carrier. The purchaser, because title to the goods passes at the time of shipment. The seller, because risk of loss passes only when the goods reach the purchaser's loading dock. The seller, because risk of loss remains with the seller until the goods are accepted by the purchaser. None 18. A sheep rancher agreed, in writing, to sell all the wool shorn during the shearing season to a weaver. The contract failed to establish the price and a minimum quantity of wool. After the shearing season, the rancher refused to deliver the wool. The weaver sued the rancher for breach of contract. Under the Sales Article of the UCC, will the weaver win? Yes, because this was an output contract. Yes, because both price and quantity terms were omitted. No, because quantity cannot be omitted for a contract to be enforceable. No, because the omission of price and quantity terms prevents the formation of a contract. None 19. Noll gives Carr a written power of attorney. Which of the following statements is correct regarding this power of attorney? It must be signed by both Noll and Carr. It must be for a definite period of time. It may continue in existence after Noll's death. It may limit Carr's authority to specific transactions. None 20. Trent was retained, in writing, to act as Post's agent for the sale of Post's memorabilia collection. Which of the following statements is correct? To be an agent, Trent must be at least 21 years of age. Post would be liable to Trent if the collection were destroyed before Trent found a purchaser. Post has a duty to make Trent the exclusive agent to sell the memorabilia. Both Trent and Post must consent to the agency. None 21. Which of the following independent contractors is considered an agent? A taxicab driver hired to carry a passenger to the airport. An attorney retained to handle the sale of a family home. An artist commissioned to paint a person's portrait. A mason hired to build a stone fence around a property. None 22. Which of the following acts always will result in the total release of a compensated surety? The creditor changes the manner of the principal debtor's payment. The creditor extends the principal debtor's time to pay. The principal debtor's obligation is partially released. The principal debtor's performance is tendered. None 23. Which of the following statements regarding a creditor's rights against a surety is correct? The surety is primarily liable to the creditor. A surety does not have the right of subrogation. The creditor must collect payment from the surety through a wage garnishment. The creditor must first attempt to collect the debt from the primary debtor before being able to collect from the surety. None 24. Brown cosigned Royal's $50,000 note to State Bank. If Royal is later adjudicated mentally incompetent, what would be Brown's liability on the note? Liable to pay State Bank on the due date of the note. Liable to pay State Bank only if State Bank first seeks payment from Royal. Not liable to pay State Bank because Royal's incompetency discharges Royal as a surety. Not liable to pay State Bank unless Brown was a compensated surety. None 25. In Year 1, a taxpayer had business income before depreciation of $3,000,000. In addition, the taxpayer purchased and placed in service $2,000,000 of depreciable property for business use. The taxpayer is electing to expense the property under Section 179 but is electing out of bonus depreciation. Assuming the Section 179 limit is $1,020,000 and the threshold is $2,550,000 in Year 1, what is the property's depreciable basis? $980,000 $1,430,000 $1,960,000 $2,000,000 None 26. A taxpayer wants to deduct the cost of a seven-year asset placed in service this year. The cost qualifies for the Section 179 election to expense assets. Which of the following statements is most accurate regarding the immediate expensing of this asset versus the depreciation of this asset over seven years? Depreciation provides a greater deduction over the life of the asset. Section 179 provides a greater deduction over the life of the asset because, subject to limitations, the cost of the asset is deductible in full. The cost of the asset may be deducted under both Section 179 and as depreciation. There is no difference in the total amount that is deductible over the life of the asset. None 27. In December Year 4, a taxpayer purchased a new residence for $200,000. During that same month the taxpayer sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in Year 1. The taxpayer added a bathroom for $5,000 in Year 2. What amount of gain is recognized from the sale of the former residence on the taxpayer's Year 4 tax return? $0 $40,000 $90,000 $160,000 None 28. Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes? Father-in-law and son-in-law. Brother-in-law and sister-in-law. Grandfather and granddaughter. Ancestors, lineal descendants, and all in-laws. None 29. A deceased parent left land to their adult child. The parent's adjusted basis for the land was $100,000, and its fair market value on the parent's date of death (the estate valuation date) was $250,000. What is the child's basis for the land? $250,000 $150,000 $100,000 $0 None 30. A taxpayer owned land with a basis of $120,000, subject to a mortgage of $75,000. The taxpayer exchanged the land held for another parcel of land with a fair market value of $200,000 plus cash of $35,000, and the taxpayer was relieved of the mortgage on the relinquished land. The transaction qualified for like-kind exchange treatment. What amount of taxable gain will be recognized on the taxpayer's tax return for this exchange? $35,000 $110,000 $115,000 $190,000 None 31. A taxpayer received 100 shares of stock as a gift from their grandparent. The stock cost the grandparent $32,000, and it was worth $27,000 at the time of the transfer. The taxpayer sold the stock for $29,000. What amount of gain or loss should the taxpayer report from the sale of the stock? $0 $2,000 gain. $3,000 gain. $3,000 loss. None 32. Which expense listed below would be subject to the Uniform Capitalization Rules of Code Sec. 263A? Quality control. Research and development. Advertising. Selling. None 33. On August 15, 20X4, Tower, Nolan, and Oak were deeded a piece of land as tenants in common. The deed provided that Tower owned 1/2 the property and Nolan and Oak owned 1/4 each. If Oak dies, the property will be owned as follows: Tower 1/2, Nolan 1/4, Oak's heirs 1/4. Tower 1/3, Nolan 1/3, Oak's heirs 1/3. Tower 5/8, Nolan 3/8. Tower 1/2, Nolan 1/2. None 34. For a deed to be effective between a grantor and grantee in a transfer of real property that is not a sale, one of the conditions is that the deed must Be recorded within the permissible statutory time limits. Be delivered by the grantor with an intent to transfer title. Contain the market value of the property. Contain the signatures of the grantor and grantee. None 35. Which of the following parties generally is ineligible to collect workers' compensation benefits? Minors. Upper-level management. Union employees. Contracted construction laborers. None 36. Generally, which of the following statements concerning workers' compensation laws is correct? The amount of damages recoverable is based on comparative negligence. Employers are strictly liable without regard to whether or not they are at fault. Workers' compensation benefits are not available if the employee is negligent. Workers' compensation awards are payable for life. None 37. Darr, an employee of Sorce C corporation, is not a shareholder. Which of the following would be included in a taxpayer's gross income? Employer-provided medical insurance coverage under a health plan. A $10,000 gift from the taxpayer's grandparents. The fair market value of land that the taxpayer inherited from an uncle. The dividend income on shares of stock that the taxpayer received for services rendered. None 38. A calendar-year individual taxpayer uses accrual basis accounting. The taxpayer owns a building that was rented to Mott under a 10-year lease expiring August 31, Year 3. On January 2, Year 1, Mott paid $30,000 as consideration for canceling the lease. On November 1, Year 1, the taxpayer leased the building to Pine under a five-year lease. Pine paid $5,000 rent for each of the two months of November and December, and an additional $5,000 for the last month's rent. What amount of rental income should be reported on the taxpayer's Year 1 income tax return? $10,000 $15,000 $40,000 $45,000 None 39. Taxpayers who file a joint return actively participate in a solely-owned rental real estate activity that produces a $30,000 loss during the current year. Their adjusted gross income was $120,000 before considering the rental activity. How much of the rental loss, if any, are the taxpayers entitled to deduct? $0 $15,000 $25,000 $30,000 None 40. "A married couple reported the following items for the current year: Both spouses actively participate in the rental real estate activities. What is the taxpayers' adjusted gross income on a joint return for the year?" $94,500 $95,000 $96,500 $98,500 None 41. A cash-basis taxpayer should report gross income Only for the year in which income is actually received in cash. Only for the year in which income is actually received, whether in cash or in property. For the year in which income is either actually or constructively received in cash only. For the year in which income is either actually or constructively received, whether in cash or in property. None 42. A 33-year-old taxpayer withdrew $30,000 (pretax) from a traditional IRA. The taxpayer has a 33% effective tax rate and a 35% marginal tax rate. What is the total tax liability associated with the withdrawal? $10,000 $10,500 $13,000 $13,500 None 43. A taxpayer rents out the guesthouse behind her home for $800 per month. The current tenant has lived there continuously for more than 2 years. The taxpayer paid a contractor $1,200 to paint the exterior of the guesthouse. What amount of the painting expense is deductible and on what schedule should the expense be reported? $1,200 on Schedule A. $1,200 on Schedule C. $1,200 on Schedule E. $0 None 44. On Oct 1, year 3, Cruz purchased an annuity for $90,000 in post-tax dollars, effective immediately, that pays Cruz $500 a month until death. At the date of purchase Cruz’s official life expectancy was 25 years. How much of Cruz’s year 3 annuity payments should be included in Cruz’s gross income for year 3? $0 $900 $600 $1,500 None 45. Brenda, employed full time, makes beaded jewelry as a hobby. In year 2, Brenda's hobby generated $2,000 of sales, and she incurred $3,000 of travel expenses. What is the proper reporting of the income and expenses related to the activity? Sales of $2,000 are reported in gross income and no expenses are deducted. Sales of $2,000 are reported in gross income, $2,000 of expenses are reported as an itemized deduction, and $1,000 of loss is carried forward. Sales and expenses are netted, and the net loss of $1,000 is reported as an itemized deduction not subject to the 2% limitation. Sales and expenses are netted and deducted for AGI. None 46. Which of the following types of expenses is not an itemized deduction? Interest expense on a $500,000 mortgage to acquire a personal residence. Medical expenses greater than 7.5% of adjusted gross income. Charitable contributions of cash and property. Tax return preparation fees of $1,200. None 47. A CPA uses a commercial tax software package to prepare clients' individual income tax returns. Upon reviewing a client's computer-generated itemized deductions for year 1, the CPA discovers that the schedule's deductible investment interest expense is less than the amount paid by the taxpayer and the amount that the CPA entered into the computer. After analyzing the entire tax return, the CPA determines that the computer-generated investment interest expense deduction is correct. Why is the computer-generated investment interest expense deduction correct? The client's qualified residence interest expense reduces the deductible amount of investment interest expense. The client's total deduction for qualified residence mortgage interest and investment interest exceeds $10,000. The client's investment interest expense is subject to a 10% AGI threshold. The client's investment interest expense exceeds net investment income. None 48. Klein, a master’s degree candidate at Briar University, was awarded a $12,000 scholarship from Briar in 20X6. The scholarship was used to pay Klein’s 20X6 university tuition and fees. Also in 20X6, Klein received $5,000 for teaching two courses at a nearby college. What amount is includible in Klein’s 20X6 gross income? $0 $5,000 $12,000 $17,000 None 49. Which of the following taxpayers may use the cash method of accounting? A tax shelter with $10 million in average annual gross receipts. A qualified personal service corporation with $45 million in average annual gross receipts. A C corporation with $40 million in average annual gross receipts. A partnership with a C corporation as a partner and average annual gross receipts of $50 million. None 50. Passive activity losses of an individual taxpayer can generally be used to offset Income from the rental of a residence. A guaranteed payment received from a partnership. Dividends income from a foreign corporation. Interest income on U.S. Treasury notes. None 51. A self-employed taxpayer owns and runs Creations, LLC. The taxpayer has a defined contribution, stock bonus Keogh plan. In Year 4, the taxpayer had $225,000 in net self-employment earnings, including the deduction for 50% of self-employment tax, before any Keogh deduction. Assuming there is no excess contribution carryover from previous years, what is the highest deductible Keogh contribution the taxpayer can make in the Year 4 tax year? $45,000 $56,250 $58,000 $225,000 None 52. During the year, a corporation declares a dividend and subsequently distributes to a stockholder $15,000 in cash and a bond with a basis of $25,000 and a fair market value of $26,000 on the date of distribution. The bond had a fair market value of $26,500 on the date that the corporation declared the dividend. The corporation has current earnings and profits in excess of the total amounts distributed during the year. Which of the following identifies the tax consequences of the distribution to the stockholder? $15,000 of dividend income. $40,000 of dividend income. $41,000 of dividend income. $41,500 of dividend income. None 53. Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash? Increase in Brisk's taxable income, no change in shareholder's taxable income. No change in Brisk's taxable income, decrease in shareholder's taxable income. No change in Brisk's taxable income, no change in shareholder's taxable income. Increase in Brisk's taxable income, decrease in shareholder's taxable income. None 54. A corporation transferred fully depreciated machinery to an individual shareholder in a liquidating distribution. The original cost of the machinery was $6,000, and the fair market value at the date of the transfer was $5,000. If the shareholder's basis in the corporation's stock was $2,000, then the shareholder reports $3,000 capital gain. $3,000 ordinary income. $5,000 ordinary income and $2,000 capital loss. No gain and no loss. None 55. In the current year, Brown, a C corporation has gross income (before dividends) of $900,000 and deductions of $1,100,000 (excluding the dividends-received deduction). Brown received dividends of $100,000 from a Fortune 500 corporation during the current year. What is Brown's net operating loss? $100,000 $135,000 $150,000 $200,000 None 56. Iron Corporation, a calendar-year S corporation, owns 90% of the voting stock of Silver Corporation. On June 30, Year 3, Gold and Silver, calendar-year domestic C corporations, merged, resulting with Gold as a subsidiary of Silver. Silver owns 80% of Gold's voting stock. Which of the following statements is correct with respect to the companies' ability to file a consolidated return for Year 3? Silver and Iron may file a consolidated tax return. Silver and Gold may file a consolidated tax return. Gold and Iron may file a consolidated tax return. Silver, Gold, and Iron may file a consolidated tax return. None 57. An individual taxpayer owned 100% of Alpha Corp., an S corporation. At the beginning of the year, the taxpayer's basis in Alpha was $25,000. Alpha realized ordinary income during the year in the amount of $1,000 and a long-term capital loss in the amount of $3,000 for this year. Alpha distributed $30,000 in cash to the taxpayer during the year. What amount of the $30,000 cash distribution is taxable to the taxpayer? $0 $4,000 $7,000 $30,000 None 58. Rayle Co. is a calendar year S corporation. During Year 4, Rayle's shareholders elect to revoke its S election effective January 1, Year 5. If the shareholders wish to reelect S status, what is the earliest year a new S election can be made, absent IRS consent to an earlier election? Year 10 Year 9 Year 8 Year 4 None 59. Zinco Corp. was a calendar year S corporation. Zinco's S status terminated on April 1, Year 3, when Case Corp. became a shareholder. During Year 3 (365-day calendar year), Zinco had nonseparately computed income of $310,250. If no election was made by Zinco, what amount of the income, if any, was allocated to the S short year for Year 3? $233,750 $155,125 $76,500 $0 None 60. Which of the following items must be separately stated on Form 1120S, U.S. Income Tax Return for a Corporation, Schedule K-1? Mark-to-market income. Unearned revenue. Section 1245 gain. Gain or loss from the sale of collectibles. None 61. Mission Co. is an S corporation formed on January 1, 20X4 by four individuals who materially participate in Mission’s business. Each of Mission’s shareholders is a 25% owner of the corporation. Mick, one of Mission’s shareholders, invested $12,000 in Mission’s capital stock and loaned $10,000 to the corporation. Mission sustained an operating loss of $120,000 for the year for the year ended on December 31, 20X4. How much of this loss can Mick claim in his 20X4 income tax return? $120,000 $30,000 $22,000 $12,000 None 62. Alberta files her tax return using a calendar year and is a partner in Angel Partnership, which has a tax year ending September 30. Angel Partnership made guaranteed payments to Alberta for services rendered of $3,000 per month in Calendar Year 3. The payments were increased to $3,500 per month for Calendar Year 4. Angel issued Alberta a Schedule K-1 for its fiscal years ending September 30, Year 3 and Year 4. What amount of guaranteed payments will Alberta report on her Year 4 tax return? $31,500 $36,000 $40,500 $42,000 None 63. Tally and Bailey form the Pelion Partnership. Tally contributed $175,000 for a 70% partnership interest. Bailey contributed land with a fair market value of $75,000 and an adjusted basis of $25,000 to the partnership in exchange for a 30% interest. The partnership assumed Bailey's $10,000 recourse mortgage on the land. What is Tally's basis in her partnership interest? $15,000 $18,000 $175,000 $182,000 None 64. Owen's tax basis in Regal Partnership was $8,000 at the time Owen received a nonliquidating distribution of $3,000 cash and land with an adjusted basis of $7,000 to Regal and a fair market value of $9,000. Regal did not have unrealized receivables, appreciated inventory, or properties that had been contributed by its partners. What was Owen's tax basis in the property received? $0 $5,000 $7,000 $9,000 None 65. Turner, Reed, and Sumner are equal partners in TRS partnership. Turner contributed land with an adjusted basis of $20,000 and a fair market value (FMV) of $50,000. Reed contributed equipment with an adjusted basis of $40,000 and an FMV of $50,000. Sumner provided services worth $50,000. What amount of income is recognized as a result of the transfers? $50,000 $60,000 $90,000 $150,000 None 66. Olson, Wayne, and Hogan are equal partners in the OWH Partnership. Olson's basis in the partnership interest is $70,000. Olson receives a liquidating distribution of $10,000 cash and land with a fair market value of $63,000, and a basis of $58,000. What is Olson's basis in the land? $58,000 $60,000 $63,000 $70,000 None 67. Which of the following is a requirement for a simple trust? The trust must not have a charitable beneficiary. The trust must distribute its entire corpus currently. The trust must adopt the cash method of accounting. The trust must make no distribution of its income currently. None 68. Lakewood is a tax-exempt organization that owns and operates a 1,000-acre retreat center for underserved youth. Which of the following activities involving the retreat will result in unrelated business income for Lakewood? Selling food and beverages in the retreat cafeteria to anyone who works at or visits the retreat. Leasing the retreat in the off-season to unrelated parties and using the rental income to pay for Lakewood's operating expenses. Selling branded merchandise in the retreat's store to the general public. Using the retreat for monthly casino night events that are open to the public but staffed substantially by Lakewood volunteers. None 69. The filing of a return covering unrelated business income Is required of all exempt organizations having at least $1,000 of unrelated business taxable income for the year. Relieves the organization of having to file a separate annual information return. Is not necessary if all of the organization's income is used exclusively for charitable purposes. Must be accompanied by a minimum payment of 50% of the tax due as shown on the return, with the balance of tax payable six months later. None 70. During the current year the taxpayer who is an unmarried U.S. citizen, made a $7,000 cash gift to an only child and also paid $25,000 in tuition expenses directly to a grandchild's university on the grandchild's behalf. The taxpayer made no other lifetime transfers. Assume that the gift tax annual exclusion is $15,000. For gift tax purposes, what was the taxpayer's taxable gift? $32,000 $25,000 $17,000 $0 None 71. An organization exempt from tax under Internal Revenue Code Section 501(c)(3) is considering buying stock in an S corporation engaged in an unrelated business. Which of the following statements is correct regarding this investment? S corporation distributions will be taxed to the organization at a flat 35% rate. S corporation ordinary business income will be taxed to the organization as unrelated business income at regular corporate rates. The S corporation will be required to file for tax-exempt status. The S corporation will be deemed a tax-exempt organization. None 72. Peters owned 500 shares of common stock in Kidsmart, Inc. Accordingly, Peters had the right to Automatically receive a dividend in any quarter in which the corporation made a profit. Inspect the corporate records on demand. Vote for the election and removal of the board of directors. Be a member of the board of directors. None 73. Which of the following statements is correct regarding a limited liability company's operating agreement? It must be filed with a central state agency. It must contain the name and address of the limited liability company's registered agent. It contains provisions for allocating profits and losses to the owners. It allows a limited liability company to legally transact business. None 74. Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership agreement that states, "No partner may withdraw for a period of five years." Under the Revised Uniform Partnership Act, what is the result of Wind's withdrawal? Wind's withdrawal causes a dissolution of the partnership by operation of law. Wind's withdrawal has no bearing on the continued operation of the partnership by the remaining partners. Wind's withdrawal is not effective until Wind obtains a court-ordered decree of dissolution. Wind's withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement. None 75. A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary corporation and decided to merge that subsidiary into itself. Under the Revised Model Business Corporation Act, which of the following actions must be taken? The subsidiary corporation's stockholders must approve the merger by unanimous consent. The subsidiary corporation's dissenting stockholders must be given an appraisal remedy. The parent corporation's stockholders must approve the merger by unanimous consent. The parent corporation's dissenting stockholders must be given an appraisal remedy. None 76. In Year 1, a domestic LLC with two members elected classification as a corporation. In Year 2, one of the members withdrew from the LLC. What is the LLC's tax classification for Year 2 immediately after the member withdrew? A corporation. A liquidated corporation for tax purposes. A new entity eligible to make a classification election. A single-member LLC disregarded as separate from its owner. None 1 out of 76 Time is Up! Time's upTime is Up!
