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Wiley CPA Exam Review Regulation 2012 9th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
“Hot assets” of a partnership would include which of the following?a. Cash.b. Unrealized receivables.c. Section 1231 assets.d. Capital assets.
Robin, a C corporation, had revenues of $200,000 and operating expenses of $75,000. Robin also received a $20,000 dividend from a domestic corporation and is entitled to a $14,000 dividend-received deduction. Robin donated $15,000 to a qualified charitable organization in the current year. What is
Farr, an unmarried taxpayer, had $70,000 of adjusted gross income and the following deductions for regular income tax purposes:Home mortgage interest on a loan to acquire a principal residence $11,000 Miscellaneous itemized deductions above the threshold limitation $2,000 What are Farr’s total
Stone owns 100% of an S corporation and materially participates in its operations. The stock basis at the beginning of the year is $5,000.During the year, the corporation makes a distribution of $3,500 and passes through a loss from operations of $2,000 for the year. What loss can Stone deduct on
In the current year, a taxpayer reports the following items:Salary $50,000 Income from partnership A, in which the taxpayer materially participates 20,000 Passive activity loss from partnership B (40,000)During the year, the taxpayer disposed of the interest in partnership B, which had a suspended
Lobster, Inc. incurs the following losses on disposition of business assets during the year:Loss on the abandonment of office equipment $25,000 Loss on the sale of a building (straight-line depreciation taken in prior years of$200,000) 250,000 Loss on the sale of delivery trucks 15,000 What is the
Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under Code Sec. 1245?a. $0b. $ 40,000c. $ 60,000d. $100,000
On January 1, Fast, Inc. entered into a covenant not to compete with Swift, Inc. for a period of five years, with an option by Swift to extend it to seven years. What is the amortization period of the covenant for tax purposes?a. 5 years.b. 7 years.c. 15 years.d. 17 years.
Sam’s year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. For year 3, Sam expects taxable income of$250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of year 3 estimated tax payments that
In the current year, Essex sold land with a basis of $80,000 to Yarrow for $100,000. Yarrow paid $25,000 down and agreed to pay$15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Essex include in gross income for the
Which of the following transactions is subject to registration requirements of the Securities Act of 1933?a. The public sale of stock of a trucking company regulated by the Interstate Commerce Commission.b. A public sale of municipal bonds issued by a city government.c. The issuance of stock by a
Which of the following interests in real property gives the holder of that interest the greatest possessory interest in the property?a. Easement.b. Restrictive covenant.c. License.d. Fee simple.
Under the Secured Transactions Article of the UCC, which of the following statements is correct regarding a security interest that has not attached?a. It is effective against the debtor, but not against third parties.b. It is effective against both the debtor and third parties.c. It is effective
Under the Negotiable Instruments Article of the UCC, the proper party to whom a check is presented for payment isa. The drawer.b. The maker.c. The holder.d. The drawee.
In which of the following types of action, brought against a CPA who issues an audit report containing an unqualified opinion on materially misstated financial statements, may a plaintiff prevail without proving reliance on the audit report?a. An action for common law fraud.b. An action for common
A company engaged a CPA to perform the annual audit of its financial statements. The audit failed to reveal an embezzlement scheme by one of the employees. Which of the following statements best describes the CPA’s potential liability for this failure?a. The CPA’s adherence to generally
Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client’s financial report be liable?a. Only those third parties in privity of contract with the accountant.b. All third parties who relied on the report and sustained
Campbell acquired a 10% interest in Vogue Partnership by contributing a building with an adjusted basis of $40,000 and a fair market value of $90,000. The building was subject to a $60,000 mortgage that was assumed by Vogue. The other partners contributed cash only. The basis of Campbell’s
Simon, a C corporation, had a deficit in accumulated earnings and profits of $50,000 at the beginning of the year and had current earnings and profits of $10,000. At year end, Simon paid a dividend of $15,000 to its sole shareholder. What amount of the dividend is reported as income?a. $0b. $
Lamont signed a promissory note in favor of Roth as part of Lamont’s purchase of supplies from Roth. The note required that the$10,000 be repaid 90 days from the date of the note. There were no conditions attached to repayment. Roth endorsed the note in blank and sold it to the bank. Lamont
Absent an election to close the books, the allocation of nonseparately stated income or loss for an S corporation shareholder that changed his ownership interest during the year is computed based on which of the following ownership percentages?a. Ownership percentage at the end of the S corporation
Which of the following statements about qualifying shareholders of an S corporation is correct?a. A general partnership may be a shareholder.b. Only individuals may be shareholders.c. Individuals, estates, and certain trusts may be shareholders.d. Nonresident aliens may be shareholders.
Doyle has gambling losses totaling $7,000 during the current year.Doyle’s adjusted gross income is $60,000, including $3,000 in gambling winnings. Doyle can itemize the deductions. What amount of gambling losses is deductible?a. $0b. $3,000c. $5,800d. $7,000
Cole earned $3,000 in wages, incurred $1,000 in unreimbursed employee business expenses, paid $400 as interest on a student loan, and contributed $100 to a charity. What is Cole’s adjusted gross income?a. $3,000b. $2,600c. $2,500d. $1,600
Carter incurred the following expenses in the current year: $500 for the preparation of a personal income tax return, $100 for custodial fees on an IRA, $150 for professional publications, and $2,000 for union dues. Carter’s current year adjusted gross income is $75,000. Carter, who is not
A married couple purchased their principal residence for$300,000. They spent $40,000 on improvements. After living in it for 10 years, the couple sold the home for $650,000 and paid $36,000 in real estate commissions. What gain should the couple recognize on their joint return?a. $0b. $ 60,000c.
Hogan exchanged a business-use machine having an original cost of $100,000 and accumulated depreciation of $30,000 for businessuse equipment owned by Baker having a fair market value of$80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the machine. What taxable gain should Hogan
A taxpayer purchased five acres of land for $20,000 and placed in service other tangible business assets that cost $100,000.Disregarding business income limitations and assuming that the annual Section 179 (Election to Expense Certain Depreciable Business Assets) limit is $108,000, what maximum
Which of the following costs are subject to the Uniform Capitalization Rules of Code Sec. 263A for manufactured tangible personal property?a. Off-site storage.b. Advertising.c. Research.d. Marketing.
In calculating the tax of a corporation for a short period, which of the following processes is correct?a. Divide current year income by prior year income, then multiply the result by prior year tax.b. Compute tax on short-period income, then multiply the result by 12 divided by the number of
An individual taxpayer agreed to a finding of fraud on an income tax return filed two years ago. What is the maximum time limitation, if any, after which the IRS may not assess any additional taxes against the taxpayer for this tax return?a. One year.b. Two years.c. Three years.d. There is no time
Under the Sales Article of the UCC, which of the following statements is correct regarding the creation of express warranties?a. Express warranties must contain formal words such as warranty or guarantee.b. Express warranties must be part of the basis of the bargain between buyer and seller.c.
Pierce owed Duke $3,000. Pierce contracted with Lodge to paint Lodge’s house and Lodge agreed to pay Duke $3,000 to satisfy Pierce’s debt. Pierce painted Lodge’s house but Lodge did not pay Duke the $3,000. In a lawsuit by Duke against Pierce and Lodge, who will be liable to Duke?a. Pierce
Under agency law, which of the following statements best describes ratification?a. A principal’s affirmation of an agent’s authorized act.b. A principal’s affirmation of an agent’s unauthorized act.c. A principal’s approval in advance of an agent’s act.d. A principal’s disavowal of an
Louis, the volunteer treasurer of a nonprofit organization and a member of its board of directors, compiles the data and fills out its annual Form 990, Return of Organization Exempt From Income Tax.Under the Internal Revenue Code, Louis is not considered a tax return preparer becausea. He is a
According to the AICPA Statements on Standards for Tax Services, which of the following factors should a CPA consider in choosing whether to provide oral or written advice to a client?a. Whether the client will seek a second opinion.b. The tax sophistication of the client.c. The likelihood that
Pursuant to Treasury Circular 230, which of the following statements about the return of a client’s records is correct?a. The client’s records are to be destroyed upon submission of a tax return.b. The practitioner may retain copies of the client’s records.c. The existence of a dispute over
Which of the following statements concerning the similarities between a general partnership and a corporation are correct?a. Corporate stockholders and general partners have limited personal liability.b. Corporations and general partnerships have perpetual existence.c. Corporations and general
Strom acquired a 25% interest in Ace Partnership by contributing land having an adjusted basis of $16,000 and a fair market value of$50,000. The land was subject to a $24,000 mortgage, which was assumed by Ace. No other liabilities existed at the time of the contribution. What was Strom’s basis
If a corporation’s charitable contributions exceed the limitation for deductibility in a particular year, the excessa. Is not deductible in any future or prior year.b. May be carried back or forward for one year at the corporation’s election.c. May be carried forward to a maximum of five
Leker exchanged a van that was used exclusively for business and had an adjusted tax basis of $20,000 for a new van. The new van had a fair market value of $10,000, and Leker also received $3,000 in cash. What was Leker’s tax basis in the acquired van?a. $20,000b. $17,000c. $13,000d. $ 7,000
Which of the following rights is a holder of a public corporation’s cumulative preferred stock always entitled to?a. Conversion of the preferred stock into common stock.b. Voting rights.c. Dividend carryovers from years in which dividends were not paid, to future years.d. Guaranteed dividends.
Furl Corp., a corporation organized under the laws of State X, sued Row, a customer residing in State Y, for nonpayment for goods sold. Row attempted to dismiss the suit brought by Furl in State Y on the grounds that Furl was conducting business in State Y but had not obtained a certificate of
Which of the following statements concerning the similarities between a general partnership and a corporation are correct?a. Corporate stockholders and general partners have limited personal liability.b. Corporations and general partnerships have perpetual existence.c. Corporations and general
Following are the fair market values of Wald’s assets at the date of death:Personal effects and jewelry $1,400,000 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 3,900,000 The executor of Wald’s estate
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 unified
On July 1, 2011, in connection with a recapitalization of Yorktown Corporation, Robert Moore exchanged 1,000 shares of stock that cost him $95,000 for 1,000 shares of new stock worth $108,000 and bonds in the principal amount of $10,000 with a fair market value of$10,500. What is the amount of
Bern Corp., an S corporation, had an ordinary loss of $36,500 for the year ended December 31, 2010. At January 1, 2010, Meyer owned 50% of Bern’s stock. Meyer held the stock for forty days in 2010 before selling the entire 50% interest to an unrelated third party.Meyer’s basis for the stock was
The following information pertains to Hull, Inc., a personal holding company, for the year ended December 31, 2010:Undistributed personal holding company income $100,000 Dividends paid during 2010 20,000 Consent dividends reported in the 2010 individual income tax returns of the holders of Hull’s
Roberta Warner and Sally Rogers formed the Acme Corporation on October 1, 2011. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Rogers received 100 shares of Acme’s common stock for services rendered.How much should Rogers include as taxable
Clark and Hunt organized Jet Corp. with authorized voting common stock of $400,000. Clark contributed $60,000 cash. Both Clark and Hunt transferred other property in exchange for Jet stock as follows:What was Clark’s basis in Jet stock?a. $0b. $100,000c. $110,000d. $160,000 Other property Fair
Hall and Haig are equal partners in the firm of Arosa Associates.On January 1, 2010, each partner’s adjusted basis in Arosa was$40,000. During 2010 Arosa borrowed $60,000, for which Hall and Haig are personally liable. Arosa sustained an operating loss of$10,000 for the year ended December 31,
In 2009, Martha received as a gift several shares of Good Corporation stock. The donor’s basis of this stock was $2,800, and he paid gift tax of $50. On the date of the gift, the fair market value of the stock was $2,600. If Martha sells this stock in 2011 for $2,700, what amount and type of gain
On July 1, 2011, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received from Wilson $30,000 cash and other investment real property having a fair market value of $250,000. Wilson assumed the mortgage. What is Riley’s
A calendar-year taxpayer files an individual tax return for 2010 on March 20, 2011. The taxpayer neither committed fraud nor omitted amounts in excess of 25% of gross income on the tax return. What is the latest date that the Internal Revenue Service can assess tax and assert a notice of
This item is based on the following selected 2010 information pertaining to Sam and Ann Hoyt, who filed a joint federal income tax return for the calendar year 2010. The Hoyts had adjusted gross income of $34,000 and itemized their deductions for 2010. Among the Hoyts’ cash expenditures during
On August 1, 2011, Graham purchased and placed into service an office building costing $264,000 including $30,000 for the land. What was Graham’s MACRS deduction for the office building in 2011?a. $9,600b. $6,000c. $3,600d. $2,250
Axis Corp. is an accrual-basis calendar-year corporation. On December 13, 2010, the Board of Directors declared a 2% of profits bonus to all employees for services rendered during 2010 and notified them in writing. None of the employees own stock in Axis. The amount represents reasonable
For the year ended December 31, 2010, Don Raff earned $1,000 interest at Ridge Savings Bank on a certificate of deposit scheduled to mature in 2011. In January 2011, before filing his 2010 income tax return, Raff incurred a forfeiture penalty of $500 for premature withdrawal of the funds. Raff
Moch sold her farm to Watkins and took back a purchase money mortgage on the farm. Moch failed to record the mortgage. Moch’s mortgage will be valid against all of the following parties excepta. The heirs or estate of Watkins.b. A subsequent mortgagee who took a second mortgage since he had heard
A dispute has arisen between two merchants over the question of who has the risk of loss in a given sales transaction. The contract does not specifically cover the point. The goods were shipped to the buyer who rightfully rejected them. Which of the following factors will be the most important
In which of the following situations would an oral agreement without any consideration be binding under the Uniform Commercial Code?a. A renunciation of a claim or right arising out of an alleged breach.b. A firm offer by a merchant to sell or buy goods which gives assurance that it will be held
Your client has in its possession the following instrument:This instrument isa. A negotiable time draft.b. A nonnegotiable note since it states that it is secured by a conditional sales contract.c. Not negotiable until June 1, 2002.d. A negotiable bearer note. $700.000 Provo, Utah May 1, 2002
Which of the following statements is (are) true of the National Environment Policy Act?I. The Act provides tax breaks for those companies that help accomplish national environmental policy.II. Enforcement of the Act is primarily accomplished by litigation of persons who decide to challenge federal
One of the major purposes of federal security regulation is toa. Establish the qualifications for accountants who are members of the profession.b. Eliminate incompetent attorneys and accountants who participate in the registration of securities to be offered to the public.c. Provide a set of
The partnership of Maxim & Rose, CPAs, has been engaged by their largest client, a limited partnership, to examine the financial statements in connection with the offering of 2,000 limited-partnership interests to the public at $5,000 per subscription. Under these circumstances, which of the
Which of the following is (are) true under the Americans with Disabilities Act?I. The Act requires companies to make reasonable accommodations for disabled persons unless this results in undue hardship on the operations of the company.II. The Act requires that companies with 100 or more employees
Which of the following is (are) included in the Articles of Incorporation when a corporation is formed?a. The number of authorized shares of stock.b. The name of the registered agent of the corporation.c. The names and addresses of the incorporators.d. All of the above.
A tax return preparer may disclose or use tax return information without the taxpayer’s consent toa. Facilitate a supplier’s or lender’s credit evaluation of the taxpayer.b. Accommodate the request of a financial institution that needs to determine the amount of taxpayer’s debt to it, to be
Lyon, a cash-basis taxpayer, died on January 15, 2010. In 2010, the estate executor made the required periodic distribution of $9,000 from estate income to Lyon’s sole heir. The following pertains to the estate’s income and disbursements in 2010:2010 Estate Income$20,000 Taxable interest 10,000
On February 10, 2010, Ace Corp., a calendar-year corporation, elected S corporation status and all shareholders consented to the election. There was no change in shareholders in 2010. Ace met all eligibility requirements for S status during the preelection portion of the year. What is the earliest
Kari Corp., a manufacturing company, was organized on January 2, 2010. Its 2010 federal taxable income was $400,000 and its federal income tax was $100,000. What is the maximum amount of accumulated taxable income that may be subject to the accumulated earnings tax for 2010 if Kari takes only the
Bank Corp. owns 80% of Shore Corp.’s outstanding capital stock.Shore’s capital stock consists of 50,000 shares of common stock issued and outstanding. Shore’s 2010 net income was $140,000. During 2010, Shore declared and paid dividends of $60,000. In conformity with generally accepted
Eastern Corp., a calendar-year corporation, was formed in 2009. On January 2, 2010, it placed five-year property in service. The property was depreciated under the general MACRS system. Eastern did not elect to use the straight-line method. The following information pertains to Eastern:Eastern’s
How much ordinary income should Slagle report in his 2011 income tax return on the sale of his partnership interest?a. $0b. $10,000c. $70,000d. $77,000
What was the total amount realized by Slagle on the sale of his partnership interest?a. $67,000b. $70,000c. $77,000d. $87,000
At partnership inception, Black acquires a 50% interest in Decorators Partnership by contributing property with an adjusted basis of $80,000. Black recognizes a gain if I. The fair market value of the contributed property exceeds its adjusted basis.II. The property is encumbered by a mortgage with
Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. With regard to capital assets and Section 1231 assets, how should these assets be classified?Land Sheda. Capital Capitalb. Section 1231 Capitalc. Capital Section 1231d.
The following information pertains to Wald Corp.’s operations for the year ended December 31, 2010:Worldwide taxable income $300,000 US source taxable income 180,000 US income tax before foreign tax credit 96,000 Foreign nonbusiness-related interest earned 30,000 Foreign income taxes paid on
Spencer, who itemizes deductions, had adjusted gross income of$60,000 in 2010. The following additional information is available for 2010:Cash contribution to church $4,000 Purchase of art object at church bazaar (with a fair market value of $800 on the date of purchase) 1,200 Donation of used
Sol and Julia Crane (both age 41) are married, and filed a joint return for 2010. Sol earned a salary of $115,000 in 2010 from his job at Troy Corp., where Sol is covered by his employer’s pension plan. In addition, Sol and Julia earned interest of $3,000 in 2010 on their joint savings account.
Ace Rentals, Inc., an accrual-basis taxpayer, reported rent receivable of $35,000 and $25,000 in its 2011 and 2010 balance sheets, respectively. During 2011, Ace received $50,000 in rent payments and$5,000 in nonrefundable rent deposits. In Ace’s 2011 corporate income tax return, what amount
Frank Lanier is a resident of a state that imposes a tax on income.The following information pertaining to Lanier’s state income taxes is available:Taxes withheld in 2011 $3,500 Refund received in 2011 of 2010 tax 400 Deficiency assessed and paid in 2011 for 2009:Tax 600 Interest 100 What amount
Tremont Enterprises, Inc. needed some additional working capital to develop a new product line. It decided to obtain intermediate term financing by giving a second mortgage on its plant and warehouse.Which of the following is true with respect to the mortgages?a. If Tremont defaults on both
Wilmont owned a tract of waterfront property on Big Lake. During Wilmont’s ownership of the land, several frame bungalows were placed on the land by tenants who rented the land from Wilmont. In addition to paying rent, the tenants paid for the maintenance and insurance of the bungalows, repaired,
Kent, a wholesale distributor of cameras, entered into a contract with Williams. Williams agreed to purchase 100 cameras with certain optional attachments. The contract was made on March 1, 2009, for delivery by March 15, 2009; terms: 2/10, net 30.Kent shipped the cameras on March 6, and they were
Duval Manufacturing Industries, Inc. orally engaged Harris as one of its district sales managers for an eighteen-month period commencing April 1, 2009. Harris commenced work on that date and performed his duties in a highly competent manner for several months. On October 1, 2009, the company gave
Which of the following is a part of the social security law?a. A self-employed person must contribute an annual amount that is equal to the combined contributions of an employee and his or her employer.b. Upon the death of an employee prior to his retirement, his estate is entitled to receive the
A debtor will be denied a discharge in bankruptcy if the debtora. Failed to timely list a portion of his debts.b. Unjustifiably failed to preserve his books and rec-ords which could have been used to ascertain the debtor’s financial condition.c. Has negligently made preferential transfers to
Rhodes Corp. desired to acquire the common stock of Harris Corp.and engaged Johnson & Co., CPAs, to audit the financial statements of Harris Corp. Johnson failed to discover a significant liability in performing the audit. In a common law action against Johnson, Rhodes at a minimum must provea.
Which of the following is true concerning the rights of shareholders?a. Shareholders have the right to receive dividends when the corporation makes a profit.b. Shareholders have the right to manage the corporation.c. Shareholders have no right to inspect the books and records of the corporation.d.
Three partners have formed a general partnership that they desire to last for several years. They have not agreed to any specified time period.Which of the following is true under the Revised Uniform Partnership Act?a. The partnership agreement is required to be in writing.b. All three partners are
Kopel was engaged to prepare Raff’s 2010 federal income tax return. During the tax preparation interview, Raff told Kopel that he paid$3,000 in property taxes in 2010. Actually, Raff’s property taxes amounted to only $600. Based on Raff’s word, Kopel deducted the$3,000 on Raff’s return,
Ross, a calendar-year, cash-basis taxpayer who died in June 2011, 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 2011. This $10,000 should appear ina. Only the decedent’s
When Jim and Nina became engaged in April 2011, Jim gave Nina a ring that had a fair market value of $50,000. After their wedding in July 2011, 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 2011 marital
Brooke, Inc., an S corporation, was organized on January 2, 2010, 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 a
Barbaro Corporation’s retained earnings at January 1, 2010, was$600,000. During 2010 Barbaro paid cash dividends of $150,000 and received a federal income tax refund of $26,000 as a result of an IRS audit of Barbaro’s 2007 tax return. Barbaro’s net income per books for the year ended December
Finbury Corporation’s taxable income for the year ended December 31, 2010, was $2,000,000 on which its tax liability was $680,000. In order for Finbury to escape the estimated tax underpayment penalty for the year ending December 31, 2011, Finbury’s 2011 estimated tax payments must equal at
If this distribution were in complete liquidation of Reed’s interest in Post, Reed’s basis for the land would bea. $14,000b. $12,500c. $ 5,000d. $ 1,500
If this distribution were nonliquidating, Reed’s recognized gain or loss on the distribution would bea. $11,000 gain.b. $ 9,000 loss.c. $ 1,500 loss.d. $0.
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