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Wiley CPA Examination Review Outlines And Study Guides Volume 1 - 2012-2013 39th Edition Patrick R. Delaney, O. Ray Whittington - Solutions
70. The following information pertains to Raubolt Corporation’s operations for the current year:Worldwide taxable income $300,000 US source taxable income 180,000 US income tax before foreign tax credit 96,000 General category income 90,000 Foreign income tax paid on general category income
69. Crocker Corp.’s unused foreign tax credit:a. Can be carried back two years and forward twenty years.b. Can be carried back one year and forward ten years.c. Can be carried back two years and forward five years.d. Cannot be carried to other tax years.
68. Assuming Crocker’s US income tax for the current year before credits is $210,000, its maximum foreign tax credit for the current year isa. $ 6,400b. $30,000c. $35,000d. $40,000
67. Which one of the following statements regarding the foreign operations of Glencoe Corporation (a domestic corporation)is correct?a. Glencoe’s earnings from its foreign operations are not subject to US income tax.b. Glencoe may take a deduction, but not a credit, for the income taxes paid to a
66. What would be Miramar’s State XY apportionment factor if State XY used an apportionment formula in which the property factor was double-weighted?a. 50%b. 52%c. 54.75%d. 60%
65. What is Miramar’s State XY UDITPA appointment factor and State XY business income?a. 60%; $600,000 business incomeb. 50%; $500,000 business incomec. 53%; $530,000 business incomed. 53%; $1,000,000 business income
64. With regard to unrelated business income of an exempt organization, which one of the following statements is true?a. If an exempt organization has any unrelated business income, such organization automatically forfeits its exempt status for the particular year in which such income was earned.b.
63. If an exempt organization is a charitable trust, then unrelated business income isa. Not subject to tax.b. Taxed at rates applicable to corporations.c. Subject to tax even if such income is less than$1,000.d. Subject to tax only for the amount of such income in excess of $1,000.
62. An incorporated exempt organization subject to tax on its 2012 unrelated business incomea. Must make estimated tax payments if its tax can reasonably be expected to be $100 or more.b. Must comply with the Code provisions regarding installment payments of estimated income tax by corporations.c.
61. Which of the following statements is correct regarding the unrelated business income of exempt organizations?a. If an exempt organization has any unrelated business income, it may result in the loss of the organization’s exempt status.b. Unrelated business income relates to the performance of
60. During 2011, Help, Inc., an exempt organization, derived income of $15,000 from conducting bingo games.Conducting bingo games is legal in Help’s locality and is confined to exempt organizations in Help’s state. Which of the following statements is true regarding this income?a. The entire
59. If an exempt organization is a corporation, the tax on unrelated business taxable income isa. Computed at corporate income tax rates.b. Computed at rates applicable to trusts.c. Credited against the tax on recognized capital gains.d. Abated.
58. Which of the following activities regularly carried out by an exempt organization will not result in unrelated business income?a. The sale of laundry services by an exempt hospital to other hospitals.b. The sale of heavy-duty appliances to senior citizens by an exempt senior citizen’s
57. Which one of the following statements is correct with regard to unrelated business income of an exempt organization?a. An exempt organization that earns any unrelated business income in excess of $100,000 during a particular year will lose its exempt status for that particular year.b. An exempt
56. An organization that operates for the prevention of cruelty to animals will fail to meet the operational test to qualify as an exempt organization if The organization engages in insubstantial nonexempt activities The organization directly participates in any political campaigna. Yes Yesb. Yes
55. Which of the following activities regularly conducted by a tax-exempt organization will result in unrelated business income?I. Selling articles made by handicapped persons as part of their rehabilitation, when the organization is involved exclusively in their rehabilitation.II. Operating a
54. The organizational test to qualify a public service charitable entity as tax-exempt requires the articles of organization to I. Limit the purpose of the entity to the charitable purpose.II. State that an information return should be filed annually with the Internal Revenue Service.a. I only.b.
53. Hope is a tax-exempt religious organization. Which of the following activities is (are) consistent with Hope’s taxexempt status?I. Conducting weekend retreats for business organizations.II. Providing traditional burial services that maintain the religious beliefs of its members.a. I only.b.
52. To qualify as an exempt organization,a. A written application need not be filed if no applicable official form is provided.b. No employee of the organization is permitted to receive compensation in excess of $100,000 per year.c. The applicant must be of a type specifically identified as one of
51. To qualify as an exempt organization, the applicanta. Must fall into one of the specific classes upon which exemption is conferred by the Internal Revenue Code.b. Cannot, under any circumstances, be a foreign corporation.c. Cannot, under any circumstances, engage in lobbying activities.d.
50. Which one of the following statements is correct with regard to exempt organizations?a. An organization is automatically exempt from tax merely by meeting the statutory requirements for exemptions.b. Exempt organizations that are required to file annual information returns must disclose the
49. An organization wishing to qualify as an exempt organizationa. Is prohibited from issuing capital stock.b. Is limited to three prohibited transactions a year.c. Must not have non-US citizens on its governing board.d. Must be of a type specifically identified as one of the classes on which
48. A condominium management association wishing to be treated as a homeowners association and to qualify as an exempt organization for a particular yeara. Need not file a formal election.b. Must file an election as of the date the association was organized.c. Must file an election at the beginning
47. The filing of a return covering unrelated business incomea. Is required of all exempt organizations having at least $1,000 of unrelated business taxable income for the year.b. Relieves the organization of having to file a separate annual information return.c. Is not necessary if all of the
46. Carita Fund, organized and operated exclusively for charitable purposes, provides insurance coverage, at amounts substantially below cost, to exempt organizations involved in the prevention of cruelty to children. Carita’s insurance activities area. Exempt from tax.b. Treated as unrelated
45. To qualify as an exempt organization, the applicanta. May be organized and operated for the primary purpose of carrying on a business for profit, provided that all of the organization’s net earnings are turned over to one or more tax exempt organizations.b. Need not be specifically identified
44. To qualify as an exempt organization other than a church or an employees’ qualified pension or profit-sharing trust, the applicanta. Cannot operate under the “lodge system” under which payments are made to its members for sick benefits.b. Need not be specifically identified as one of the
43. Which of the following exempt organizations would be eligible to satisfy its annual filing requirement by filing Form 990-N (e-Postcard)?a. Church.b. Private foundation.c. An exempt organization with $20,000 of gross receipts.d. An exempt organization with $3,500 of gross income from an
42. The private foundation status of an exempt organization will terminate if ita. Becomes a public charity.b. Is a foreign corporation.c. Does not distribute all of its net assets to one or more public charities.d. Is governed by a charter that limits the organization’s exempt purposes.
41. For income tax purposes, the estate’s initial taxable period for a decedent who died on October 24a. May be either a calendar year, or a fiscal year beginning on the date of the decedent’s death.b. Must be a fiscal year beginning on the date of the decedent’s death.c. May be either a
40. Astor, a cash-basis taxpayer, died on February 3. During the year, the estate’s executor made a distribution of$12,000 from estate income to Astor’s sole heir and adopted a calendar year to determine the estate’s taxable income.The following additional information pertains to the
39. On January 2, 2012, Carlt created a $300,000 trust that provided his mother with a lifetime income interest starting on January 2, 2012, with the remainder interest to go to his son. Carlt expressly retained the power to revoke both the income interest and the remainder interest at any time.
38. The charitable contribution deduction on an estate’s fiduciary income tax return is allowablea. If the decedent died intestate.b. To the extent of the same adjusted gross income limitation as that on an individual income tax return.c. Only if the decedent’s will specifically provides for
37. An executor of a decedent’s estate that has only US citizens as beneficiaries is required to file a fiduciary income tax return, if the estate’s gross income for the year is at leasta. $ 400b. $ 500c. $ 600d. $1,000
36. Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductiblea. Only on the fiduciary income tax return(Form 1041) and never on the federal estate tax return (Form 706).b. Only on the federal estate tax return and never on the fiduciary income tax return.c. On
35. Which of the following fiduciary entities are required to use the calendar year as their taxable period for income tax purposes?Estates Trusts (except those that are tax exempt)a. Yes Yesb. No Noc. Yes Nod. No Yes
34. The 2012 standard deduction for a trust or an estate in the fiduciary income tax return isa. $0b. $650c. $750d. $800
33. A complex trust is a trust thata. Must distribute income currently, but is prohibited from distributing principal during the taxable year.b. Invests only in corporate securities and is prohibited from engaging in short-term transactions.c. Permits accumulation of current income, provides for
32. With regard to estimated income tax, estatesa. Must make quarterly estimated tax payments starting no later than the second quarter following the one in which the estate was established.b. Are exempt from paying estimated tax during the estate’s first two taxable years.c. Must make quarterly
31. A distribution to an estate’s sole beneficiary for the 2011 calendar year equaled $15,000, the amount currently required to be distributed by the will. The estate’s 2011 records were as follows:Estate income$40,000 Taxable interest Estate disbursements$34,000 Expenses attributable to
30. A distribution from estate income, that was currently required, was made to the estate’s sole beneficiary during its calendar year. The maximum amount of the distribution to be included in the beneficiary’s gross income is limited to the estate’sa. Capital gain income.b. Ordinary gross
29. Lyon’s executor does not intend to file an extension request for the estate fiduciary income tax return. By what date must the executor file the Form 1041, US Fiduciary Income Tax Return, for the estate’s 2011 calendar year?a. March 15, 2012.b. April 15, 2012.c. June 15, 2012.d. September
28. For the 2011 calendar year, what was the estate’s distributable net income (DNI)?a. $15,000b. $20,000c. $25,000d. $30,000
27. Under the terms of the will of Melvin Crane, $10,000 a year is to be paid to his widow and $5,000 a year is to be paid to his daughter out of the estate’s income during the period of estate administration. No charitable contributions are made by the estate. During 2011, the estate made the
26. For 2012, the generation-skipping transfer tax is imposeda. Instead of the gift tax.b. Instead of the estate tax.c. At the highest tax rate under the transfer tax rate schedule.d. When an individual makes a gift to a grandparent.
25. In 2005, Edwin Ryan bought 100 shares of a listed stock for $5,000. In June 2011, when the stock’s fair market value was $7,000, Edwin gave this stock to his sister, Lynn.No gift tax was paid. Lynn died in October 2011, bequeathing this stock to Edwin, when the stock’s fair market value was
24. In computing the taxable estate, the executor of Alan’s estate should claim a marital deduction ofa. $ 450,000b. $ 780,800c. $ 900,000d. $3,000,000
23. Disregarding extensions of time for filing, within how many months after the date of Alan’s death is the federal estate tax return due?a. 2 1/2b. 3 1/2c. 9d. 12
22. Ross, a calendar-year, cash-basis taxpayer who died in June 2012, was entitled to receive a $10,000 accounting fee that had not been collected before the date of death. The executor of Ross’ estate collected the full $10,000 in July 2012. This $10,000 should appear ina. Only the decedent’s
21. Proceeds of a life insurance policy payable to the estate’s executor, as the estate’s representative, area. Includible in the decedent’s gross estate only if the premiums had been paid by the insured.b. Includible in the decedent’s gross estate only if the policy was taken out within
20. With regard to the federal estate tax, the alternate valuation datea. Is required to be used if the fair market value of the estate’s assets has increased since the decedent’s date of death.b. If elected on the first return filed for the estate, may be revoked in an amended return provided
19. Eng and Lew, both US citizens, died in 2011. Eng made taxable lifetime gifts of $400,000 that are not included in Eng’s gross estate. Lew made no lifetime gifts. At the dates of death, Eng’s gross estate was $3,600,000, and Lew’s gross estate was $4,800,000. A federal estate tax return
18. Which one of the following is a valid deduction from a decedent’s gross estate?a. Foreign death taxes.b. Income tax paid on income earned and received after the decedent’s death.c. Federal estate taxes.d. Unpaid income taxes on income received by the decedent before death.
17. Following are the fair market values of Wald’s assets at the date of death:Personal effects and jewelry $1,750,000 Land bought by Wald with Wald’s funds five years prior to death and held with Wald’s sister as joint tenants with right of survivorship 3,800,000 The executor of Wald’s
16. In connection with a “buy-sell” agreement funded by a cross-purchase insurance arrangement, business associate Adam bought a policy on Burr’s life to finance the purchase of Burr’s interest. Adam, the beneficiary, paid the premiums and retained all incidents of ownership. On the death
15. Fred and Amy Kehl, both US citizens, are married. All of their real and personal property is owned by them as tenants by the entirety or as joint tenants with right of survivorship.The gross estate of the first spouse to diea. Includes 50% of the value of all property owned by the couple,
14. Which of the following credits may be offset against the gross estate tax to determine the net estate tax of a US citizen dying during 2011?Applicable credit Credit for gift taxes paid on gifts made after 1976a. Yes Yesb. No Noc. No Yesd. Yes No
13. What amount of a decedent’s taxable estate is effectively tax-free if the maximum basic exclusion amount is taken during 2011?a. $1,000,000b. $1,455,800c. $3,500,000d. $5,000,000
12. If the executor of a decedent’s estate elects the alternate valuation date and none of the property included in the gross estate has been sold or distributed, the estate assets must be valued as of how many months after the decedent’s death?a. 12b. 9c. 6d. 3
11. Bell, a cash-basis calendar-year taxpayer, died on June 1, 2012. In 2012, prior to her death, Bell incurred$2,000 in medical expenses. The executor of the estate paid the medical expenses, which were a claim against the estate, on July 1, 2012. If the executor files the appropriate waiver, the
10. Fred and Ethel (brother and sister), residents of a noncommunity property state, own unimproved land that they hold in joint tenancy with rights of survivorship. The land cost $100,000 of which Ethel paid $80,000 and Fred paid$20,000. Ethel died during 2012 when the land was worth$300,000, and
9. Raff created a joint bank account for himself and his friend’s son, Dave. There is a gift to Dave whena. Raff creates the account.b. Raff dies.c. Dave draws on the account for his own benefit.d. Dave is notified by Raff that the account has been created.I.B. Estate Tax
8. When Jim and Nina became engaged in April 2012, Jim gave Nina a ring that had a fair market value of $50,000.After their wedding in July 2012, Jim gave Nina $75,000 in cash so that Nina could have her own bank account. Both Jim and Nina are US citizens. What was the amount of Jim’s 2012
7. Jan, an unmarried individual, gave the following outright gifts in 2012:Donee Amount Use by donee Jones $15,000 Down payment on house Craig 14,000 College tuition Kande 5,000 Vacation trip Jan’s 2012 exclusions for gift tax purposes should totala. $32,000b. $31,000c. $29,000d. $18,000
6. On July 1, 2011, Vega made a transfer by gift in an amount sufficient to require the filing of a gift tax return.Vega was still alive in 2012. If Vega did not request an extension of time for filing the 2010 gift tax return, the due date for filing wasa. March 15, 2012.b. April 15, 2012.c. June
5. Which of the following requires filing a gift tax return, if the transfer exceeds the available annual gift tax exclusion?a. Medical expenses paid directly to a physician on behalf of an individual unrelated to the donor.b. Tuition paid directly to an accredited university on behalf of an
4. Under the unified rate schedule for 2012,a. Lifetime taxable gifts are taxed on a noncumulative basis.b. Transfers at death are taxed on a noncumulative basis.c. Lifetime taxable gifts and transfers at death are taxed on a cumulative basis.d. The gift tax rates are 5% higher than the estate tax
3. During 2012, Blake transferred a corporate bond with a face amount and fair market value of $20,000 to a trust for the benefit of her sixteen-year old child. Annual interest on this bond is $2,000, which is to be accumulated in the trust and distributed to the child on reaching the age of
2. In 2012, Sayers, who is single, gave an outright gift of$50,000 to a friend, Johnson, who needed the money to pay medical expenses. In filing the 2012 gift tax return, Sayers was entitled to a maximum exclusion ofa. $0b. $12,000c. $13,000d. $50,000
1. Steve and Kay Briar, US citizens, were married for the entire 2011 calendar year. In 2011, Steve gave a $30,000 cash gift to his sister. The Briars made no other gifts in 2011. They each signed a timely election to treat the$30,000 gift as made one-half by each spouse. Disregarding the
162. On April 1, 2012, in connection with a recapitalization of Oakbrook Corporation, Mary Roberts exchanged 500 shares that cost her $95,000 for 1,000 shares of new stock worth $91,000 and bonds in the principal amount of $10,000 with a fair market value of $10,500. What is the amount of
161. In 2009, Celia Mueller bought a $1,000 bond issued by Disco Corporation for $1,100. Instead of paying off the bondholders in cash, Disco issued 100 shares of preferred stock in 2012 for each bond outstanding. The preferred stock had a fair market value of $15 per share. What is the recognized
160. Claudio Corporation and Stellar Corporation both report on a calendar-year basis. Claudio merged into Stellar on June 30, 2011. Claudio had an allowable net operating loss carryover of $270,000. Stellar’s taxable income for the year ended December 31, 2011, was $360,000 before consideration
159. Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?a. Stock redemption.b. Recapitalization.c. Mere change in identity.d. Statutory merger.
158. With regard to corporate reorganizations, which one of the following statements is correct?a. A mere change in identity, form, or place of organization of one corporation does not qualify as a reorganization.b. The reorganization provisions cannot be used to provide tax-free treatment for
157. Which one of the following is a corporate reorganization as defined in the Internal Revenue Code?a. Mere change in place of organization of one corporation.b. Stock redemption.c. Change in depreciation method from accelerated to straight-line.d. Change in inventory costing method from FIFO to
156. Pursuant to a plan of corporate reorganization adopted in July 2012, Gow exchanged 500 shares of Lad Corp.common stock that he had bought in January 2009 at a cost of $5,000 for 100 shares of Rook Corp. common stock having a fair market value of $6,000. Gow’s recognized gain on this exchange
155. In a type B reorganization, as defined by the Internal Revenue Code, the I. Stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent.II. Acquiring corporation must have control of the target corporation immediately after the
154. Ace Corp. and Bate Corp. combine in a qualifying reorganization and form Carr Corp., the only surviving corporation.This reorganization is tax-free to the Shareholders Corporationsa. Yes Yesb. Yes Noc. No Yesd. No No
153. Jaxson Corp. has 200,000 shares of voting common stock issued and outstanding. King Corp. has decided to acquire 90% of Jaxson’s voting common stock solely in exchange for 50% of its voting common stock and retain Jaxson as a subsidiary after the transaction. Which of the following
152. Brooke, Inc., an S corporation, was organized on January 2, 2011, with two equal stockholders who materially participate in the S corporation’s business. Each stockholder invested $5,000 in Brooke’s capital stock, and each loaned$15,000 to the corporation. Brooke then borrowed $60,000 from
151. Which of the following is not a requirement for a corporation to elect S corporation status (Subchapter S)?a. Must be a member of a controlled group.b. Must confine stockholders to individuals, estates, and certain qualifying trusts.c. Must be a domestic corporation.d. Must have only one class
150. An S corporation maya. Have both common and preferred stock outstanding.b. Have a partnership as a shareholder.c. Have a nonresident alien as a shareholder.d. Have as many as 100 shareholders.
149. An S corporation is not permitted to take a deduction fora. Compensation of officers.b. Interest paid to individuals who are not stockholders of the S corporation.c. Charitable contributions.d. Employee benefit programs established for individuals who are not stockholders of the S corporation.
148. If a calendar-year S corporation does not request an automatic six-month extension of time to file its income tax return, the return is due bya. January 31.b. March 15.c. April 15.d. June 30.
147. An S corporation’s accumulated adjustments account, which measures the amount of earnings that may be distributed tax-freea. Must be adjusted downward for the full amount of federal income taxes attributable to any taxable year in which the corporation was a C corporation.b. Must be adjusted
146. An S corporation may deducta. Foreign income taxes.b. A net Section 1231 loss.c. Investment interest expense.d. The amortization of organizational expenditures.
145. With regard to S corporations and their stockholders, the “at risk” rules applicable to lossesa. Depend on the type of income reported by the S corporation.b. Are subject to the elections made by the S corporation’s stockholders.c. Take into consideration the S corporation’s ratio of
144. 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
143. A calendar-year corporation whose status as an S corporation was terminated during 2012 must wait how many years before making a new S election, in the absence of IRS consent to an earlier election?a. Can make a new S election for calendar year 2012.b. Must wait three years.c. Must wait five
142. Bern Corp., an S corporation, had an ordinary loss of$36,500 for the year ended December 31, 2011. At January 1, 2011, Meyer owned 50% of Bern’s stock. Meyer held the stock for forty days in 2011 before selling the entire 50%interest to an unrelated third party. Meyer’s basis for the stock
141. A corporation that has been an S corporation from its inception may Have both passive and nonpassive income Be owned by a bankruptcy estatea. No Yesb. Yes Noc. No Nod. Yes Yes
140. If an S corporation has no accumulated earnings and profits, the amount distributed to a shareholdera. Must be returned to the S corporation.b. Increases the shareholder’s basis for the stock.c. Decreases the shareholder’s basis for the stock.d. Has no effect on the shareholder’s basis
139. Which of the following conditions will prevent a corporation from qualifying as an S Corporation?a. The corporation owns 100% of the stock of a C corporation.b. The corporation is a partner in a partnership.c. 30% of the corporation’s stock is held by a voting trust.d. The corporation has
138. The Haas Corp., a calendar-year S corporation, has two equal shareholders. For the year ended December 31, 2011, Haas had income of $60,000, which included $50,000 from operations and $10,000 from investment interest income.There were no other transactions that year. Each shareholder’s basis
137. An S corporation has 30,000 shares of voting common stock and 20,000 shares of nonvoting common stock issued and outstanding. The S election can be revoked voluntarily with the consent of the shareholders holding, on the day of the revocation, Shares of voting stock Shares of nonvoting stocka.
136. On February 10, 2011, Ace Corp., a calendar-year corporation, elected S corporation status and all shareholders consented to the election. There was no change in shareholders in 2011. Ace met all eligibility requirements for S status during the preelection portion of the year. What is the
135. As of January 1, 2011, Kane owned all the 100 issued shares of Manning Corp., a calendar-year S corporation. On the 40th day of 2011, Kane sold 25 of the Manning shares to Rodgers. For the year ended December 31, 2011 (a 365-day calendar year), Manning had $73,000 in nonseparately stated
134. Bristol Corp. was formed as a C corporation on January 1, 2001, and elected S corporation status on January 1, 2009. At the time of the election, Bristol had accumulated C corporation earnings and profits that have not been distributed.Bristol has had the same 25 shareholders throughout its
133. Zinco Corp. was a calendar-year S corporation.Zinco’s S status terminated on April 1, 2011, when Case Corp. became a shareholder. During 2011 (365-day calendar year), Zinco had nonseparately computed income of$310,250. If no election is made by Zinco, what amount of the income, if any,
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