1. business and industrial

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USCPA— REG
2014 全真模拟题
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REGULATION
Multipole Choice
1. Which of the following is not required in order for the plaintiff to prevail in an action for
innocent misrepresentation?
A. That the misrepresentation was intended to induce reliance.
B. That the misrepresentation amounted to gross negligence。
C. That the plaintiff acted promptly and offered to restore what was received.
D. That the plaintiff relied upon the misrepresentation.
2. Under the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a
CPA may be liable if the CPA acted
A. Negligently.
B. With independence.
C. Without due diligence.
D. Without good faith.
3. On December 31, 2013, after receipt of his share of partnership income, Clark sold his
interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the
adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of
$15,000 and his share of the partnership liabilities of $25,000. The partnership has no
unrealized receivables or appreciated inventory. What is Clark’s gain or loss on the sale of his
partnership interest?
A. Ordinary loss of $10,000.
B. Ordinary gain of $15,000.
C. Capital loss of $10,000.
D. Capital gain of $15,000.
4. Azure, a C corporation, reports the following:
• Pretax book income of $543,000.
• Depreciation on the tax return is $20,000 greater than depreciation on the financial
statements.
• Rent income reportable on the tax return is $36,000 greater than rent income per the
financial statements.
• Fines for pollution appear as a $10,000 expense in the financial statements.
• Interest earned on municipal bonds is $25,000.
What is Azure's taxable income?
A. $528,000
B. $543,000
C. $544,000
D. $559,000
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5. Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited
Dart’s financial statements and gave an unqualified opinion, despite knowing that the
financial statements contained misstatements. Jay’s opinion was included in Dart’s
registration statement. Larson purchased shares in the offering and suffered a loss when the
stock declined in value after the misstatements became known. In a suit against Jay under the
antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934,
Larson must prove all of the following except
A. Larson was an intended user of the false registration statement.
B. Larson relied on the false registration statement.
C. The transaction involved some form of interstate commerce.
D. Jay acted with intentional disregard of the truth.
6. Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a
fringe benefit, group term-life insurance at twice Johnson's salary. The annual
IRS-established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson
include in gross income?
A. $100,000
B. $100,276
C. $100,414
D. $100,552
7. On April 5, Anker, Inc. furnished Bold Corp. with Anker’s financial statements dated March
31. The financial statements contained misrepresentations which indicated that Anker was
solvent when in fact it was insolvent. Based on Anker’s financial statements, Bold agreed to
sell Anker 90 computers, “FOB—Bold’s loading dock.” On April 14, Anker received 60 of the
computers. The remaining 30 computers are in the possession of the common carrier and in
transit to Anker. If on April 28, Bold discovered that Anker was insolvent, then with respect to
the computers delivered to Anker on April 14, Bold may
A. Reclaim the computers upon making a demand.
B. Reclaim the computers irrespective of the rights of any subsequent third party.
C. Not reclaim the computers since 10 days have elapsed from its delivery.
D. Not reclaim the computers since it is entitled to recover the price of the computers.
8. Salon, Inc. distributed cash and personal property to its sole shareholder. Using the
following facts, determine the amount of gain that would be recognized by Salon, Inc. as the
result of making the distribution to its shareholder?
Item
Amount
Cash
$20,000
Personal property:
Fair market value
6,000
Adjusted basis
3,000
Liability on property assumed by shareholder
10,000
A. $ 3,000
B. $ 4,000
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C. $ 7,000
D. $23,000
9. In a like-kind exchange of an asset for another asset, no taxable gain will be recognized if
the transaction consists of the exchange of
A. A 10% interest in Partnership A for a 10% interest in Partnership B.
B. Rental real property in the United States for rental real property in England.
C. Apartment building held for business use for land held for investment.
D. Land held for business use for truck held for business use.
10. Which of the following is a security which is exempt from the registration requirements of
the Securities Act of 1933?
A. Warrants to purchase preferred stock.
B. Convertible, subordinated debentures issued by a manufacturing company.
C. Common stock with a par value of less than $1.00.
D. Bonds issued by a charitable foundation.
11. Mackay paid Manus $1,000 to deliver a painting to Mackay’s friend Mann. When they met
and signed the contract, Mackay said she wanted the painting delivered as soon as possible
because it was a gift for Mann’s birthday. Several months have passed without the delivery.
Mann can maintain lawsuits against which parties to get the painting?
A. Manus only.
B. Mackay only.
C. Manus, but only if he also brings suit against Mackay.
D. Manus or Mackay at Mann’s option.
12. Hamilton Corp. is making a $4,500,000 securities offering under Rule 505 of Regulation D
of the Securities Act of 1933. Under this regulation, Hamilton is
A. Required to provide full financial information to accredited investors only.
B. Allowed to make the offering through a general solicitation.
C. Limited to selling to no more than 35 nonaccredited investors.
D. Allowed to sell to an unlimited number of investors both accredited and nonaccredited.
13. Gibson purchased stock with a fair market value of $14,000 from Gibson’s adult child for
$12,000. The child’s cost basis in the stock at the date of sale was $16,000. Gibson sold the
same stock to an unrelated party for $18,000. What is Gibson’s recognized gain from the
sale?
A. $0
B. $2,000
C. $4,000
D. $6,000
14. On November 1, Yost sent a telegram to Zen offering to sell a rare vase. The offer
required that Zen’s acceptance telegram be sent on or before 5:00 P.M. on November 2. On
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November 2, at 3:00 P.M., Zen sent an acceptance by overnight mail. It did not reach Yost
until November 5. Yost refused to complete the sale to Zen. Is there an enforceable contract?
A. Yes, because the acceptance was made within the time specified.
B. Yes, because the acceptance was effective when sent.
C. No, because Zen did not accept by telegram.
D. No, because the offer required receipt of the acceptance within the time specified.
15. Green was unable to repay a loan from State Bank when due. State refused to renew the
loan unless Green provided an acceptable surety. Green asked Royal, a friend, to act as surety
on the loan. To induce Royal to agree to become a surety, Green fraudulently represented
Green’s fi nancial condition and prom ised Royal discounts on mer chandise sold at Green’s
store. Royal agreed to act as surety and the loan was renewed. Later, Green’s obligation to
State was discharged in Green’s bankruptcy. State wants to hold Royal liable. Royal may avoid
liability
A. If Royal can show that State was aware of the fraudulent representations.
B. If Royal was an uncompensated surety.
C. Because the discharge in bankruptcy will prevent Royal from having a right of
reimbursement.
D. Because the arrangement was void at the inception.
16. A tax return preparer may disclose or use tax return information without the taxpayer’s
consent to
A. Facilitate a supplier’s or lender’s credit evaluation of the taxpayer.
B. Accommodate the request of a fi nancial institution that needs to determine the amount of
taxpayer’s debt to it, to be forgiven.
C. Be evaluated by a quality or peer review.
D. Solicit additional nontax business.
17. On January 1, 2013, Kane was a 25% equal partner in Maze General Partnership, which
had partnership liabilities of $300,000. On January 2, 2013, a new partner was admitted and
Kane’s interest was reduced to 20%. On April 1, 2013, Maze repaid a $100,000 general
partnership loan. Ignoring any income, loss, or distributions for 2013, what was the net effect
of the two transactions for Kane’s tax basis in Maze partnership interest?
A. Has no effect.
B. Decrease of $35,000.
C. Increase of $15,000.
D. Decrease of $75,000.
18. Noninventory goods were purcchased and delivered on June 15, 2014. Several security
interests exist in these goods. Which of the following security interests has priority over the
others?
A. security interest perfected on June 20, 2014
B. security interest in future goods attached June 10, 2014
C. security interest attached June 15, 2014
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D. Purchase money security interest perfected June 2, 2014
19. Frank Lyon was held up and robbed of $800 cash in June 2013. One month later, Frank
had $2,000 cash stolen from him by his housekeeper. Frank’s adjusted gross income for
2013 was $10,000. How much was deductible by Frank for theft losses in 2013?
A. $900
B. $1,600
C. $1,700
D. $1,800
20. Gladys Peel owns a 50% interest in the capital and profits of the partnership of Peel and
Poe. On July 1, 2013, Peel bought land the partnership had used in its business for its fair
market value of $10,000. The partnership had acquired the land five years ago for $16,000.
For the year ended December 31, 2013, the partnership’s net income was $94,000 after
recording the $6,000 loss on the sale of land. Peel’s distributive share of ordinary income from
the partnership for 2013 was
A. $47,000
B. $48,500
C. $49,000
D. $50,000
21. Under the Sales Article of the UCC, which of the following circumstances best describes
how the implied warranty of fitness for a particular purpose arises in a sale of goods
transaction?
A. The buyer is purchasing the goods for a particular purpose and is relying on the seller's skill
or judgment to select suitable goods.
B. The buyer is purchasing the goods for a particular purpose and the seller is a merchant in
such goods.
C. The seller knows the particular purpose for which the buyer will use the goods and knows
the buyer is relying on the seller's skill or judgment to select suitable goods.
D. The seller knows the particular purpose for which the buyer will use the goods and the seller
is a merchant in such goods.
22. When a corporation has an unused net capital loss that is carried back or carried forward
to another tax year?
A. It retains its original identity as short-term or long-term.
B. It is treated as a short-term capital loss whether or not it was short-term when sustained.
C. It is treated as a long-term capital loss whether or not it was long-term when sustained.
D. It can be used to offset ordinary income up to the amount of the carryback or carryover.
23. During the current year Alfred Allen sustained a serious injury in the course of his
employment. As a result of this injury, Allen received the following amounts during the same
year:
Workers’ compensation
$2,400
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Reimbursement from employer’s accident and health plan for medical 1,800
expenses paid by Allen
Damages for personal physical injuries
8,000
How much of the above amounts should Allen include in his gross income for the current year?
A. $12,200
B. $8,000
C. $1,800
D. $0
24. How does a noncorporate shareholder treat the gain on a redemption of stock that
qualifies as a partial liquidation of the distributing corporation?
A. Entirely as capital gain.
B. Entirely as a dividend.
C. Partly as capital gain and partly as a dividend.
D. As a tax-free transaction.
25. Baker sold goods to Abrams for $300, taking Abrams’ negotiable note in payment, with
the agreement that Baker would deliver the goods immediately. Baker sold and endorsed the
note to Cantrell, an innocent party, for $250 of which $50 was paid in cash and $200 was to
be paid in 10 days. Baker did not deliver the goods for which the note had been given before
the 10 days expired, and Abrams so informed Cantrell. Cantrell paid the remaining $200 to
Baker on the 10th day as agreed. Cantrell sued Abrams for the $300. Which of the following
statements is a correct legal solution or proposition?
A. The total failure to deliver any of the goods constitutes a defense which will prevail even
against a holder in due course.
B. Cantrell can only recover $60.
C. Cantrell can only recover $250.
D. Cantrell can recover the full $300.
26. on June 1, Year 2, Rusk corp. was petitioned involintarily into bankruptcy at the time of the
filing, Rusk had the following creditors:
Safe bank for the balance due on the secured note and mortgage on risk’s warehouse
Employee salary claims
Year 1 federal income taxed due
Accountant’s fees outstanding
Utility bills outstanding
Prior to the bankruptcy filing, but while insolvent, risk engaged in the following
transactions:
On February 1, Year 2, Rusk repaid all corporate directors’ loans made to the corporation.
On May 1, Year 2, Rusk purchased raw materials for use in its manufacturing business ande
paid cash to the supplier
The statements below are related to the May 1 and February 1 transactions and several
creditors.
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I. The May 1 purchase and payment was not a preferential transfer because it was a
transaction in the ordinary course of business
II. The May 1 purchase and payment was a preferential transfer because it occurred within 90
days of the filing of the petition
III. The February 1 repayments of the directors’ loans were preferential transfers even though
the payments were made more than 90 days before the filing of the petition.
IV. The February 1 repayments of the directors’ aons were preferential traansfers because the
payments were made to insiders.
Which of the above are correct?
A. I, III, IV
B. II, III, IV
C. II, IV
D. I, III
27. Under the Revised UCC Secured Transaction Article, what is the effect of perfecting a
security interest by filing a financing statement?
A. The secured party can enforce its security interest against the debtor.
B. The secured party has permanent priority in the collateral even if the collateral is removed
to an other state.
C. The debtor is protected against all other parties who acquire an interest in the collateral
after the filing.
D. The secured party has priority in the collateral over most creditors who acquire a security
interest in the same collateral after the filing.
28. Which of the following statements regarding an individual's suspended passive activity
losses is correct?
A. $3,000 of suspended losses can be utilized each year against portfolio income.
B. Suspended losses can be carried forward, but not back, until utilized.
C. Suspended losses must be carried back three years and forward seven years.
D. A maximum of 50% of the suspended losses can be used each year when an election is
made to forgo the carry-back period.
29. Reuter Bank loaned Sabean Corporation $500,000 in writing. As part of the agreement,
Reuter required that the three owners of Sabean act as sureties on the loan. The corporation
also required that some real estate owned by Sabean Corporation be used as collateral for
40% of the loan. The collateral and sure tyship agreements were put in writing and signed by
all relevant parties. When the $500,000 loan became due, which of the fol lowing rights does
Reuter Bank have?
I. May demand payment of the full amount immediately from the sureties when the
corporation de faults on the loan.
II. May demand payment of the full amount immediately from the sureties even if Reuter does
not attempt to re cover any amount from the collateral.
III. May attempt to recover up to $200,000 from the collat eral and the remainder from the
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sureties, even if the re mainder is more than $300,000.
IV. Must first attempt to collect the debt from Sabean Corporation before it can resort to the
sureties or the collateral.
A. I and III only.
B. II only.
C. I, II, and III only.
D. IV only.
30. Which of the following statements is correct with respect to the registration requirements
of the Securities Exchange Act of 1934?
A. They require issuers of nonexempt securities traded on a national securities exchange to
register with the SEC.
B. They permit issuers who comply with the Securities Act of 1933 to avoid the registration
requirements of the Securities Exchange Act of 1934.
C. They permit issuers who comply with those requirements to avoid state registration
requirements.
D. They permit issuers who comply with those requirements to avoid the registration
requirements of the Securities Act of 1933.
31. In which of the following respects do general partnerships and limited liability partnerships
differ?
I. In the level of liability of the partners for torts they themselves commit.
II. In the level of liability of the partners for torts committed by other partners in the same
firm.
III. In the amount of liability of the partners for contracts signed by other partners on behalf
of the partnership.
A. I only.
B. II only.
C. I and II only.
D. II and III only.
32. The admission of a new general partner to a limited partner ship requires approval by
I. A majority of the general partners.
II. All of the general partners.
III. A majority of the limited partners.
IV. All of the limited partners.
A. I only.
B. II only.
C. I and III only.
D. II and IV only.
33. David Hetnar is covered by a $90,000 group-term life insurance policy of which his wife is
the beneficiary. Hetnar’s employer pays the entire cost of the policy, for which the uniform
annual premium is $1 per $1,000 of coverage. How much of this premium is taxable to
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Hetnar?
A. $0
B. $40
C. $50
D. $90
34. For 2013, Robert had adjusted gross income of $100,000 and potential itemized
deductions as follows:
Medical expenses (before percentage limitations)
$12,000
State income taxes
4,000
Real estate taxes
3,500
Qualified housing and residence mortgage interest
10,000
Home equity mortgage interest (used to consolidate personal debts)
4,500
Charitable contributions (cash)
5,000
What are Robert’s itemized deductions that are allowable for alternative minimum tax
purposes?
A. $17,000
B. $19,500
C. $21,500
D. $25,500
35. Long, Fall, and Pear own a building as joint tenants with the right of survivorship. Long
gave Long’s interest in the building to Green by executing and delivering a deed to Green.
Neither Fall nor Pear consented to this transfer. Fall and Pear subsequently died. After their
deaths, Green’s interest in the building would consist of
A. A 1/3 interest as a joint tenant.
B. A 1/3 interest as a tenant in common.
C. No interest because Fall and Pear did not consent to the transfer.
D. Total ownership due to the deaths of Fall and Pear.
36. Smith buys a TV set from the ABC Appliance Store and pays for the set with a check. Later
in the day Smith finds a better model for the same price at another store. Smith immediately
calls ABC trying to cancel the sale. ABC tells Smith that they are holding him to the sale and
have negotiated the check to their wholesaler, Glenn Company, as a partial payment on
inventory purchases. Smith telephones his bank, the Union Trust Bank, and orders the bank to
stop payment on the check. Which of the following statements is correct?
A. If Glenn can prove it is a holder in due course, the drawee bank, Union Trust, must honor
Smith’s check.
B. Union Trust is not bound or liable for Smith’s stop payment order unless the order is placed
in writing
C. If Union Trust mistakenly pays Smith’s check 2 days after receiving the stop order, the bank
will not be liable.
D. Glenn cannot hold Smith liable on the check.
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37. Jones, a divorced person and custodian of her 10-year-old child, filed her 2013 federal
income tax return as head of a household. She submitted the following information to the
CPA who prepared her 2013 return:
The divorce agreement, executed in 2009, provides for Jones to receive $5,000 per month,
of which $2,000 is designated as child support. After the child reaches age 18, the monthly
payments are to be reduced to $3,000 and are to continue until remarriage or death. However,
for the year 2013, Jones received a total of only $12,000 from her former husband. Jones
paid an attorney $4,000 in 2013 in a suit to collect the alimony owed.
What amount should be included in Jones’s 2013 return as alimony income?
A. $0
B. $8,000
C. $12,000
D. $36,000
38. Eckson was granted an order for relief after having filed a petition in bankruptcy. Which of
the following actions would bar a general discharge in bankruptcy?
I. Ten months before the bankruptcy proceedings, Eckson had obtained credit from Cardinal
Corporation by using false information on the credit application.
II. Six months before he filed the petition, Eckson removed assets from his land with the
intent to defraud creditors.
III. During the bankruptcy proceedings, Eckson made a false entry on some records
pertaining to his assets.
A. I only.
B. I and II only.
C. II and III only.
D. I, II, and III.
39. Rey Corp.’s management intends to solicit proxies relating to its annual meeting at which
directors will be elected. Rey is subject to the registration and reporting requirements of the
Securities Exchange Act of 1934. As a result, Rey must furnish its shareholders with
A. A copy of its registration statement and bylaws.
B. A copy of its proxy statement 2 weeks before the proxy solicitation
C. An annual report containing its audited statements of income for the 5 most recent years.
D. An annual report containing its audited balance sheets for the 2 most recent years.
40. Which one of the following will render a corporation ineligible for S corporation status?
A. One of the stockholders is a decedent’s estate.
B. One of the stockholders is a bankruptcy estate.
C. The corporation has both voting and nonvoting common stock issued and outstanding.
D. The corporation has 110 stockholders.
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41. Bell Co. owned 20 engines which it deposited in a public warehouse on May 5, receiving a
negotiable warehouse receipt in its name. Bell sold the engines to Spark Corp. On which of the
following dates did the risk of loss transfer from Bell to Spark?
A. June 11 - Spark signed a contract to buy the engines from Bell for $19,000. Delivery was
to be at the warehouse.
B. June 12 - Spark paid for the engines.
C. June 13 - Bell negotiated the warehouse receipt to Spark.
D. June 14 - Spark received delivery of the engines at the warehouse.
42. Dart Corp., a calendar-year corporation, was formed in 2003 and made an S corporation
election in 2005 that is still in effect. Its books and records for 2013 refl ect the following
information:
Accumulated earnings and profi ts at 1/1/13
$90,000
Accumulated adjustments account at 1/1/13
50,000
Ordinary income for 2013
200,000
Dart Corp. is solely owned by Robert, whose basis in Dart’s stock was $100,000 on January 1,
2013. During 2013, Dart distributed $310,000 to Robert. What is the amount of the $310,000
distribution that Robert must report as dividend income for 2013 assuming no special
elections were made with regard to the distribution?
A. $0
B. $ 60,000
C. $ 90,000
D. $140,000
43. Rachel Mroz, a self-employed taxpayer, reported the following information for 2013:
Income:
Dividends from investments
$ 300
Net short-term capital gain on sale of investment
1,400
Deductions: Net loss from business
(10,000)
Personal exemption
Standard deduction
(3,900)
(6,100)
What is the amount of Rachel’s net operating loss for 2013 that can be carried back to Rachel’s
2011 taxable year?
A. $8,300
B. $10,000
C. $13,700
D. $15,800
44. During 2013 Robert Moore, who is 50 years old and unmarried, maintained his home in
which he and his widower father, age 75, resided. His father had $4,100 interest income from
a savings account and also received $9,700 from Social Security during 2013. Robert provided
60% of his father’s total support for 2013. What is Robert’s filing status for 2013, and how
many exemptions should he claim on his tax return?
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A. Head of household and 2 exemptions.
B. Single and 2 exemptions.
C. Head of household and 1 exemption.
D. Single and 1 exemption.
45. On June 1, year 1, Nord Corp. engaged Milo & Co., CPAs, to perform certain management
advisory services for 9 months for a $45,000 fee. The terms of their oral agreement required
Milo to commence performance any time before October 1, year 1. On June 30, year 2, after
Milo completed the work to Nord’s satisfaction, Nord paid Milo $30,000 by check. Nord
conspicuously marked on the check that it constituted payment in full for all services rendered.
Nord has refused to pay the remaining $15,000 arguing that, although it believes the $45,000
fee is reasonable, it had received bids of $30,000 and $38,000 from other firms to perform the
same services as Milo. Milo endorsed and deposited the check. If Milo commences an action
against Nord for the remaining $15,000, Milo will be entitled to recover
A. $0 because there has been an enforceable accord and satisfaction.
B. $0 because the Statute of Frauds has not been satisfied.
C. $8,000 because $38,000 was the highest other bid.
D. $15,000 because it is the balance due under the agreement.
46. Julie received a parcel of land as a gift from her Aunt Agnes. At the time of the gift, the
land had a fair market value of $84,000 and an adjusted basis of $24,000. This was the only
gift that Julie received from Agnes during 2013. If Agnes paid a gift tax of $14,000 on the
transfer of the gift to Julie, what tax basis will Julie have for the land?
A. $23,000
B. $35,000
C. $36,000
D. $84,000
47. Richard Putney, who lived in Idaho for 5 years, moved to Texas in 2013 to accept a new
position. His employer reimbursed him in full for all direct moving costs, but did not pay for
any part of the following indirect moving expenses incurred by Putney:
House hunting trips to Texas
$800
Temporary housing in Texas
900
How much of the indirect expenses can be deducted by Putney as moving expenses?
A. $0
B. $900
C. $1,500
D. $1,700
48. In 2013, Cable Corp., a calendar-year C corporation, contributed $80,000 to a qualifi ed
charitable organization. Cable’s 2013 taxable income before the deduction for charitable
contributions was $820,000 after a $40,000 dividends received deduction. Cable also had
carryover contributions of $10,000 from the prior year. In 2013, what amount can Cable
deduct as charitable contributions?
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A. $90,000
B. $86,000
C. $82,000
D. $80,000
49. Which of the following statements regarding personal holding companies is correct?
A. Personal holding companies are taxed at ordinary rates on taxable income plus 20% of
personal holding company income.
B. The personal holding company tax may be avoided by dividend payments sufficient to
reduce undistributed personal holding company income to zero.
C. One of the requirements for being a personal holding company is that during the last half
of the tax year, five or fewer individuals own more than 80% of the company’s outstanding
stock directly or indirectly.
D. One of the requirements for being a personal holding company is that the corporation
receive at least 90% of its adjusted ordinary gross income as "personal holding company
income" (e.g., dividends, interest, rents, royalties, and other passive income).
50. Tim and Nicole Wendler were divorced in 2011. Under the terms of their divorce decree,
Tim paid alimony to Nicole at the rate of $60,000 in 2011, $25,000 in 2012, and nothing in
2013. What amount of alimony recapture must be included in Tim’s gross income for 2013?
A. $0
B. $10,000
C. $35,000
D. $47,500
51. To establish a cause of action based on strict liability in tort for personal injuries resulting
from using a defective product, one of the elements the plaintiff must prove is that the seller
(defendant)
A. Defectively designed the product.
B. Was engaged in the business of selling the product.
C. Was in privity of contract with the plaintiff.
D. Failed to exercise due care.
52. Second Best Buy, Inc, is a retailer of small appliances. Second Best Buy gives Cahse
Financial Corporation a security interest in the inventory owned by Second Best Buy, Inc.
Chase files a financing statement to perfect its interest Who has higher prioriy in the collateral
than Chase?
A. a subsequent trustee in bankruptcy
B. a subsequent lien creditor
C. the stockholders of Second Best Buy
D. A buyer in the ordinary course of Second Best Buy’s business
53. Jones, Smith, and Bay wanted to form a company called JSB Co. but were unsure about
which type of entity would be most beneficial based on their concerns. They all desired the
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opportunity to make tax-free contributions and distributions where appropriate. They wanted
earnings to accumulate tax-free. They did not want to be subject to personal holding tax and
did not want double taxation of income. Bay was going to be the only individual giving
management advice to the company and wanted to be a member of JSB through his current
company, Channel, Inc. Which of the following would be the most appropriate business
structure to meet all of their concerns?
A. Proprietorship.
B. S corporation.
C. C corporation.
D. Limited liability partnership.
54. Beele authorized McDonald to be his agent to go to Denver and purchase some real estate
that would be suitable to open up a branch office for Beele’s business. He tells McDonald not
to pay more than $125,000 for the real estate. McDonald contacts York to buy some real
estate she owns. York calls Beele and Beele tells York that McDonald is his agent to buy the
real estate. Nothing is mentioned about the $125,000 limitation. After negotiations between
McDonald and York, McDonald signs a contract purchasing the real estate for $140,000.
McDonald signed it indicating on the contract that he was signing as agent for Beele. Further
facts show that the real estate is worth $140,000. Which of the following is correct?
A. There is a fully enforceable contract between Beele and York for $140,000.
B. Beele may enforce the contract with York for $125,000.
C. There is no contract between Beele and York because McDonald did not have authority to
purchase the real estate for $140,000.
D. York may require that Beele pay $140,000 because the real estate was worth $140,000 not
$125,000.
55. Dunn and Shaw are partners who share profits and losses equally. In the computation of
the partnership’s 2013 book income of $100,000, guaranteed payments to partners totaling
$60,000 and charitable contributions totaling $1,000 were treated as expenses. What amount
should be reported as ordinary income on the partnership’s 2013 return?
A. $100,000
B. $101,000
C. $160,000
D. $161,000
56. Fred Zorn died on June 5, 2013, bequeathing his entire $6,000,000 estate to his sister, Ida.
The alternate valuation date was validly elected by the executor of Fred’s estate. Fred’s estate
included 2,000 shares of listed stock for which Fred’s basis was $380,000. This stock was
distributed to Ida nine months after Fred’s death. Fair market values of this stock were
At the date of Fred’s death $400,000
Six months after Fred’s death 450,000
Nine months after Fred’s death 480,000
Ida’s basis for this stock is
A. $380,000
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B. $400,000
C. $450,000
D. $480,000
57. Following the formation of a corporation, which of the following terms best describes the
process by which the promoter is released from, and the corporation is made liable for,
preincorporation contractual obligations?
A. Assignment.
B. Novation.
C. Delegation.
D. Accord and satisfaction.
58. Starr is an agent of a disclosed principal, Maple. On May 1, Starr entered into an
agreement with King Corp. on behalf of Maple that exceeded Starr’s authority as Maple’s
agent. On May 5, King learned of Starr’s lack of authority and immediately notified Maple and
Starr that it (King) was withdrawing from the May 1 agreement. On May 7, Maple ratified the
May 1 agreement in its entirety. If King refuses to honor the agreement and Maple brins an
action for breach of contract, Maple will:
A. prevail since Maple’s capacity as principal was known to Starr.
B. Lose since the May 1 agreement is void due to Starr’s lack of authority.
C. Lose since King notified Starr and Maple of its withdrawal prior to Maple’s ratification.
D. prevail since the agreement of May 1 was ratified in its entirety.
59. Harry, Betty and Jim decide to form a hair salon business. Betty and Jim agree to equally
amnage the business and have agreed to accept full personal liability for obligations of the
business. Harry contributes money to help them get started. Harry does not want any
personal liability but does want access to the books and recordes and to share in the profits.
They have all agreed that unanimous consent is needed to transfer their ownership interests.
Assume any necessary filings have been made what tye of business entity best reflects the
terms of their agreement?
A. General partnership.
B. Limited partnership.
C. Limited liability company
D. Corporation
60. In return for a 20% partnership interest, Skinner contributed $5,000 cash and land with
a $12,000 basis and a $20,000 fair market value to the partnership. The land was subject to
a $10,000 mortgage that the partnership assumed. In addition, the partnership had $20,000
in recourse liabilities that would be shared by partners according to their partnership interests.
What amount represents Skinner's basis in the partnership interest?
A. $27,000
B. $21,000
C. $19,000
D. $13,000
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61. On October 1, 2013, Donald Anderson exchanged an apartment building having an
adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and
another apartment building with a fair market value of $550,000 and subject to a mortgage of
$125,000. The property transfers were made subject to the outstanding mortgages. What
amount of gain should Anderson recognize in his tax return for 2013?
A. $0
B. $ 25,000
C. $125,000
D. $175,000
62. David Price owned machinery which he had acquired in 2012 at a cost of $100,000. During
2013, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000.
The insurance proceeds awarded to Price amounted to $125,000, and he immediately
acquired a similar machine for $110,000. What should Price report as ordinary income
resulting from the involuntary conversion for 2013?
A. $14,000
B. $15,000
C. $25,000
D. $39,000
63. Smith paid the following unreimbursed medical expenses:
Dentist and eye doctor fees
Contact lenses
Facial cosmetic surgery to improve Smith’s personal appearance
(surgery is unrelated to personal injury or congenital deformity)
Premium on disability insurance policy to pay him if he is injured
and unable to work
$ 5,000
500
10,000
2,000
What is the total amount of Smith’s tax-deductible medical expenses before the adjusted
gross income limitation?
A. $17,500
B. $15,500
C. $7,500
D. $5,500
64. Bradbury Corp., a calendar-year corporation, was formed on January 2, 2010, and had
gross receipts for its first four taxable years as follows:
Year
Gross receipts
2010
$4,500,000
2011
9,000,000
2012
9,500,000
2013
6,500,000
What is the first taxable year that Bradbury Corp. is not exempt from the alternative minimum
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tax (AMT)?
A. 2011
B. 2012
C. 2013
D. Bradbury is exempt from AMT for its first four taxable years.
65. An individual had the following capital gains and losses for the year:
Short-term capital loss
$70,000
Long-term gain (unrecaptured Section 1250 at 25%) 56,000
Collectibles gain (28% rate)
10,000
Long-term gain (15% rate)
20,000
What will be the net gain(loss) reported by the individual and at what applicable tax rate(s)?
A. Long-term gain of $16,000 at the 15% rate.
B. Short-term loss of $3,000 at the ordinary rate and long-term capital gain of $86,000 at the
15% rate.
C. Long-term capital gain of $3,000 at the 15% rate, collectibles gain of $10,000 at the 28%
rate, and Section 1250 gain of $56,000 at the 25% rate.
D. Short-term loss of $3,000 at the ordinary rate, long-term capital gain of $10,000 at the
15% rate, collectibles gain of $10,000 at the 28% rate, and Section 1250 gain of $56,000 at
the 25% rate.
66.Chicago Corp., a calendar-year C corporation, had accumulated earnings and profits of
$100,000 as of January 1, 2012, and had a deficit in its current earnings and profits for the
entire 2012 tax year in the amount of $140,000. Chicago Corp. distributed $30,000 cash to its
shareholders on December 31, 2012. What would be the balance of Chicago Corp.’s
accumulated earnings and profits as of January 1, 2013?
A. $0
B. $(30,000)
C. $(40,000)
D. $(70,000)
67. Sharif, Hirsch, and Wolff formed a limited partnership with Sharif and Hirsch as general
partners. Wolff was the limited partner. They failed to agree upon a profi t-sharing plan but put
in capital contributions of $120,000, $140,000, and $150,000, respectively. At the end of the
fi rst year how should they divide the profits?
A. Sharif and Hirsch each receives half and Wolff receives none.
B. Each of the three partners receives one-third.
C. The profits are shared in proportion to their capital contribution.
D. None of the above.
68. Elrod is attempting to introduce oral evidence in court to explain or modify a written
contract he made with Weaver. Weaver has pleaded the parol evidence rule. In which of the
following circumstances will Elrod not be able to introduce the oral evidence?
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A. The modification asserted was made several days after the written contract had been
executed.
B. The contract indicates that it was intended as the "entire contract" between the parties, and
the point is covered in detail.
C. There was a mutual mistake of fact by the parties regarding the subject matter of the
contract
D. The contract contains an obvious ambiguity on the point at issue.
69. On July 1, 2013, Kim Wald sold an antique for $12,000 that she had bought for her
personal use in 2011 at a cost of $15,000. In her 2013 return, Kim should treat the sale of the
antique as a transaction resulting in
A. A nondeductible loss.
B. Ordinary loss.
C. Short-term capital loss.
D. Long-term capital loss.
70. To be a holder in due course, the holder must fulfill certain requirements. Which of the
following does not fulfill the value requirement?
A. The holder exchanges the negotiable instrument for another negotiable instrument.
B. The holder promises in writing to perform specified services within 6 months.
C. The holder gives $980 for a promissory note with a face amount of $1,000.
D. The holder takes possession of the negotiable instrument as collateral of another debt.
71. The adjusted basis of Jody’s partnership interest was $50,000 immediately before Jody
received a current distribution of $20,000 cash and property with an adjusted basis to the
partnership of $40,000 and a fair market value of $35,000. What amount of taxable gain or
loss must Jody report as a result of this distribution and what is Jody’s basis in the distributed
property?
A. $0
$30,000
B. ($ 10,000)
$40,000
C. ($5,000)
$35,000
D. $30,000
$0
72. Which of the following types of conduct renders a contract void?
A. Mutual mistake as to facts forming the basis of the contract.
B. Undue influence by a dominant party in a confidential relationship.
C. Duress through physical compulsion.
D. Duress through improper threats.
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Simulation
1. Research
The trustee of a tax-exempt organization would like to know if the organization si
required to file an annual information return what section and subsesecions of te Internal
Revenue Code provides the requirements for tax exempt organizations to file an annual
information return?
Enter your response in the answer fields below. Guidance on correctly structuring your
response appears above and below the answer fields.
IRC
2. The following adjusted revenue and expense accounts appeared in the accounting records
of Aviator, Inc., an accrual-basis taxpayer, for the year ended December 31, 2013:
Revenues
Net sales
$2,000,000
Dividends
50,000
Interest
22,000
Gains on the sale of stock
20,000
Total
$2,092,000
Expenses
Cost of goods sold
$1,000,000
Salaries and wages
400,000
Interest
25,000
Contributions
40,000
Depreciation (see note)
260,000
Losses on the sale of stock
30,000
Total
$1,755,000
Net Income
$ 337,000
.
Additional information for 2013
(1) The dividends were received from a taxable domestic corporation, whose stock is traded
on a major stock exchange.
(2) Interest expense consists of: $20,000 interest on funds borrowed for working capital and
$5,000 interest on funds borrowed to purchase municipal bonds.
(3) Interest revenue consists of interest earned on
Corporate bonds purchased in 2013
$20,000
Municipal bonds purchased in 2013
2,000
(4) Contributions of $40,000 were made to qualifi ed charitable organizations.
(5) On January 2, 2013, Aviator, Inc. commenced active operations. In connection with
creating the business, Aviator incurred the following organizational expenditures:
Legal fees
$30,000
State incorporation fees
20,000
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Brokers commission on the sale of stock
15,000
Aviator is taking the maximum amortization deduction for the above expenditures. The
expenditures were erroneously excluded from the accounts shown above.
(6) Gains from the sale of stock arose from the following sales of stock of unrelated
corporations:
Tech. Corp (bought February 2013; sold April 2013)
$15,000
Major Corp (bought June 2013; sold September 2013)
5,000
(7) All losses from the sale of stock are classified as long-term capital losses.
For items 1 through 7 record the appropriate amount as it would appear on the Aviator, Inc.
corporate tax return. On the exam, a list of numeric answers would be presented for the
candidate to select from.
1. What is the amount of interest expense
that Aviator, Inc. can deduct on its tax
return?
2. What is the amount of interest income
that must be included in Aviator’s gross
income?
3. What is the allowable amount of
organizational expenditures that is
deductible on Aviator’s tax return?
4. How much of the capital gains must be
included in Aviator’s gross income?
5. How much of the capital losses can be
deducted on Aviator’s tax return?
6. What is the amount of Aviator’s dividends
received deduction?
7. What is Aviator’s maximum charitable
contributions deduction?
3. Before his death, Remsen, a US citizen, made cash gifts of $7,000 each to his four sisters.
In 2013 Remsen also paid $20,000 in tuition directly to his grandchild’s university on the
grandchild’s behalf. Remsen made no other lifetime transfers. Remsen died on January 9,
2013, and was survived by his wife and only child, both of whom were US citizens. The
Remsens did not live in a community property state.
At his death Remsen owned
Cash
$ 650,000
Marketable securities (fair market value)
1,900,000
Life insurance policy with Remsen’s wife named as the beneficiary (fair market value)
2,500,000
For items 1 through 5, identify the federal estate tax treatment for each item. A response may
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be selected once, more than once, or not at all.
Answer List
F: Fully includible in Remsen’s gross estate.
P: Partially includible in Remsen’s gross estate.
N: Not includible in Remsen’s gross estate.
1. What is the estate tax treatment of the
$7,000 cash gift to each sister?
2. What is the estate tax treatment of the
life insurance proceeds?
3. What is the estate tax treatment of the
marketable securities?
4. What is the estate tax treatment of the
$20,000 tuition payment?
5. What is the estate tax treatment of the
$650,000 cash?
4. Green is self-employed as a human resources consultant and reports on the cash basis for
income tax purposes. Green is an unmarried custodial parent with one dependent child.
Listed below are Green’s 2013 business and nonbusiness transactions, as well as possible tax
treatments. For each of Green’s transactions (Items 1 through 25), select the appropriate tax
treatment. A tax treatment may be selected once, more than once, or not at all.
Tax treatments
A. Taxable as other income on Form 1040.
B. Reported in Schedule B—Interest and Dividend Income.
C. Reported in Schedule C as trade or business income.
D. Reported in Schedule E—Supplemental Income and Loss.
E. Not taxable.
F. Fully deductible on Form 1040 to arrive at adjusted gross income.
G. Fifty percent deductible on Form 1040 to arrive at adjusted gross income.
H. Reported in Schedule A—Itemized Deductions (deductibility subject to threshold of 10% of
adjusted gross income).
I. Reported in Schedule A—Itemized Deductions (deductibility subject to threshold of 2% of
adjusted gross income).
J. Reported in Form 4562—Depreciation and Amortization and deductible in Schedule
A—Itemized Deductions (deductibility subject to threshold of 2% of adjusted gross income).
K. Reported in Form 4562—Depreciation and Amortization, and deductible in Schedule
C—Profit or Loss from Business.
L. Fully deductible in Schedule C—Profit or Loss from Business.
M. Partially deductible in Schedule C—Profit or Loss from Business.
N. Reported in Form 2119—Sale of Your Home, and deductible in Schedule D—Capital Gains
and Losses.
O. Not deductible.
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1. Retainer fees received from clients
2. Oil royalties received.
3. Interest income on general obligation
state and local government bonds.
4. Interest on refund of federal taxes.
5. Death benefits from term life insurance
policy on parent.
6. Interest income on US Treasury bonds.
7. Share of ordinary income from an
investment in a limited partnership
reported in Form 1065, Schedule K-1.
8. Taxable income from rental of a
townhouse owned by Green
9. Prize won as a contestant on a TV quiz
show.
10. Payment received for jury service.
11. Dividends received from mutual funds
that invest in tax-free government
obligations
12. Qualifying medical expenses not
reimbursed by insurance.
13. Personal life insurance premiums paid
by Green
14. Expenses for business-related meals
where clients were present
15. Depreciation on personal computer
purchased in 2013 used for business.
16. Business lodging expenses, while out of
town.
17. Subscriptions to professional journals
used for business.
18. Self-employment taxes paid.
19. Qualifying contributions to a simplified
employee pension plan.
20. Election to expense business equipment
purchased in 2013.
21. Qualifying alimony payments made by
Green.
22. Subscriptions for investment-related
publications.
23. Interest expense on a home-equity line
of credit for an amount borrowed to fi nance
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Green’s business.
24. Interest expense on a loan for an auto
used 75% for business
25. Loss on sale of residence.
5. Jones, Mitchell, Carey, and Gorman are knowledgeable about landscape design. They have
decided to pool their knowledge and resources to form Arrington Enterprises, Inc., a C
corporation. They will provide professional services to area businesses and homeowners. All
participants expect to work full time for Arrington Enterprises, and each expects to contribute
sufficient assets to become a 25% shareholder with a total stock equity of $50,000 each.
In addition to the skills that each brings to the new entity, the owners will contribute assets
that will enhance the company's ability to provide quality technical design and planning
services. These assets include a building, land, lawn care equipment, office furniture and
equipment, and cash for initial operating expenses.
The table below shows the assets contributed by each shareholder. In all cases, the liabilities
are recourse and are assumed by Arrington Enterprises, Inc. There are no tax avoidance
purposes inherent in the assumption of shareholder liabilities.
Shareholder Contributions to Arrington Enterprises, Inc.
Shareholder
Noncash
property
contributed
(estimated
FMV)
Liability
associated
with
property
Basis in
noncash
property
contributed
Cash
contributed
Cash
distributed to
shareholder
Jones
120,000
60,000
100,000
0
10,000
Mitchell
80,000
50,000
40,000
20,000
0
Carey
40,000
20,000
20,000
30,000
0
Gorman
70,000
0
50,000
0
20,000
For the following two shareholders in Arrington Enterprises, Inc., determine the gain realized,
gain recognized, and tax basis of the shares. Record your answers in the shaded cells in the
table below. If the value of a cell is zero, you must enter a zero (0) to receive credit for your
answer.
A1
lock
A
1
copy
B
Gain realized
2
Jones
3
Carey
C
cut paste
D
Gain recognized
Tax basis in shares
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6.Miller, age 38, is a single taxpayer and is the sales manager of Standard Co., an auto stereo
dealer.
Miller's adjusted gross income (AGI) for the year is $67,000, which includes $4,000 of
gambling winnings.
Miller's job is to oversee the sales operations of Standard Co. Miller has a private office at the
dealership and is responsible for attracting new customers and retaining current customers.
As the sales manager, Miller has the authority to hire and discharge sales personnel.
During the year, Miller attended several trade shows. While at these shows, Miller entertained
clients, met with manufacturers, and spent some time gambling. During the year, Miller
incurred and can properly document $5,000 of gambling losses.
Miller's mother incurred unreimbursed medical expenses during the year totaling $4,200.
Because she was unable to pay these medical expenses herself, Miller paid them on her behalf.
Miller cannot claim the mother as a dependent solely because her gross income is $10,000.
During the year, Miller paid the business expenses shown in the following table. Miller's
employer did not reimburse any of these expenses. In column C of the table, enter the
amounts that are reportable unreimbursed business expense deductions, subject to a
statutory percentage limitation, if any. If none of a particular unreimbursed expense is a
reportable business expense deduction, enter a zero for that expense in Column C. The total
amount deductible on Schedule A, Itemized Deductions, of Form 1040, US Individual Income
Tax Return, as unreimbursed employee business expenses will automatically calculate.
NOTE: Disregard all AGI limitations, if any, in completing the first section of this table. Then
follow the instructions in the table in completing the second section.
A
B
C
Expense
Amount
Amount
reportable on M
Schedule A
1. Unreimbursed airfares
2200
2. Dry cleaning costs for business suits worn at
dealership
440
3. Cost of meals during which business was discussed
820
with potential customers
4. Entertainment for clients, immediately after a
business discussion
770
5. Purchase of tuxedo to wear to trade show functions 400
6. Cost of a business gift to a client
50
7. Total
4680
In the following section, indicate the dollar amount of the limitations, if any, that apply to the
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expenses above. Enter any limitation as a negative number.
A
B
11. Total amount from table above
12. Other miscellaneous deduction—gambling losses
13. AGI limitation (in dollars)
14. Total amount deductible on Schedule A
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