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Wiley CPA Exam Review Regulation 2012 9th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
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
Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on November 15, 2010, and an additional 100 shares for $13,000 on December 30, 2010. On January 3, 2011, Smith sold the shares purchased on November 15, 2010, for$13,000. What amount of loss from
An accuracy-related penalty applies to the portion of tax underpayment attributable to I. Negligence or a disregard of the tax rules or regulations.II. Any substantial understatement of income tax.a. I only.b. II only.c. Both I and II.d. Neither I nor II.
In 2010, Don Mills, a single taxpayer, had $70,000 in taxable income before personal exemptions. Mills had no tax preferences. His itemized deductions were as follows:State and local income taxes $5,000 Home mortgage interest on loan to acquire residence 6,000 Miscellaneous deductions that exceed
Don Wolf became a general partner in Gata Associates on January 1, 2010, with a 5% interest in Gata’s profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the partnership business. For the year ended December 31, 2010, Gata had an operating
Lee, an attorney, uses the cash receipts and disbursements method of reporting. In 2010, a client gave Lee 500 shares of a listed corporation’s stock in full satisfaction of a $10,000 legal fee the client owed to Lee. This stock had a fair market value of $8,000 on the date it was given to Lee.
Richard Brown, who retired on May 31, 2010, receives a monthly pension benefit of $700 payable for life. His life expectancy at the date of retirement is ten years. The first pension check was received on June 15, 2010. During his years of employment, Brown contributed $12,000 to the cost of his
Purdy purchased real property from Hart and received a warranty deed with full covenants. Recordation of this deed isa. Not necessary if the deed provides that recordation is not required.b. Necessary to vest the purchaser’s legal title to the property conveyed.c. Required primarily for the
On April 14, 2010, Seeley Corp. entered into a written agreement to sell to Boone Corp. 1,200 cartons of certain goods at $.40 per carton, delivery within 30 days. The agreement contained no other terms. On April 15, 2010, Boone and Seeley orally agreed to modify their April 14 agreement so that
Nat purchased a typewriter from Rob. Rob is not in the business of selling typewriters. Rob tendered delivery of the typewriter after receiving payment in full from Nat. Nat informed Rob that he was unable to take possession of the typewriter at that time, but would return later that day. Before
Regulation D of the Securities Act of 1933 is available to issuers without regard to the dollar amount of an offering only when thea. Purchasers are all accredited investors.b. Number of purchasers who are nonaccredited is thirty-five or less.c. Issuer is not a reporting company under the
Mathews is an agent for Sears with the express authority to solicit orders from customers in a geographic area assigned by Sears.Mathews has no authority to grant discounts or to collect payment on orders solicited. Mathews secured an order from Davidson for$1,000 less a 10% discount if Davidson
If a stockholder sues a CPA for common law fraud based on false statements contained in the financial statements audited by the CPA, which of the following, if present, would be the CPA’s best defense?a. The stockholder lacks privity to sue.b. The false statements were immaterial.c. The CPA did
The Apex Surety Company wrote a general fidelity bond covering defalcations by the employees of Watson, Inc. Thereafter, Grand, an employee of Watson, embezzled $18,900 of company funds. When his activities were discovered, Apex paid Watson the full amount in accordance with the terms of the
CPAs must be concerned with their responsibilities in the performance of professional services. In performing an audit, a CPAa. Is strictly liable for failure to exercise due professional care.b. Is strictly liable for failure to detect management fraud.c. Is not liable unless the CPA is found to
Able, Bray, and Carry form a general partnership to produce and sell widgets. Able is a CPA, Bray has an MBA, and Carry has few skills. In their partnership agreement, they decide to split any profits they have in the following respective proportions: 45%, 45%, and 10%. They fail to agree on how
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.
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.
An incorporated exempt organization subject to tax on its 2011 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. Must
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
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
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.
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 center.c.
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
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 Noc.
Which of the following activities regularly conducted by a taxexempt 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 grocery
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. II
Hope is a tax-exempt religious organization. Which of the following activities is (are) consistent with Hope’s tax-exempt 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. II
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 the
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. Cannot be
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
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 exemption
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 of
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
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
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 as
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
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 unrelated
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.
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 calendar
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 estate’s income and disbursements for the year:Estate
Astor, a cash-basis taxpayer, died on February
On January 1, 2011, Carlt created a $300,000 trust that provided his mother with a lifetime income interest starting on January 1, 2011, 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. Who
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 the
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
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
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
The 2011 standard deduction for a trust or an estate in the fiduciary income tax return isa. $0b. $650c. $750d. $800
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
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
A distribution to an estate’s sole beneficiary for the 2010 calendar year equaled $15,000, the amount currently required to be distributed by the will. The estate’s 2010 records were as follows:Estate income$40,000 Taxable interest Estate disbursements$34,000 Expenses attributable to taxable
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
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 2010 calendar year?a. March 15, 2011.b. April 15, 2011.c. June 15, 2011.d. September 15,
For the 2010 calendar year, what was the estate’s distributable net income (DNI)?a. $15,000b. $20,000c. $25,000d. $30,000
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
For 2011, 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.III. Income Taxation of Estates and Trusts
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
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
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
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
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 three
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 that
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 must be
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.
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 estate
In connection with a “buy-sell” agreement funded by a crosspurchase 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 of
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,
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
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
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
Bell, a cash-basis calendar-year taxpayer, died on June 1, 2011.In 2011, 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, 2011. If the executor files the appropriate waiver, the
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 2011 when the land was worth $300,000, and
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
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
Jan, an unmarried individual, gave the following outright gifts in 2011:Donee Amount Use by donee Jones $15,000 Down payment on house Craig 14,000 College tuition Kande 5,000 Vacation trip Jan’s 2011 exclusions for gift tax purposes should totala. $32,000b. $31,000c. $29,000d. $18,000
On July 1, 2010, Vega made a transfer by gift in an amount sufficient to require the filing of a gift tax return. Vega was still alive in 2011. If Vega did not request an extension of time for filing the 2010 gift tax return, the due date for filing wasa. March 15, 2011.b. April 15, 2011.c. June
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
Under the unified rate schedule for 2011,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
During 2011, 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
In 2011, 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 2011 gift tax return, Sayers was entitled to a maximum exclusion ofa. $0b. $12,000c. $13,000d. $50,000
Steve and Kay Briar, US citizens, were married for the entire 2010 calendar year. In 2010, Steve gave a $30,000 cash gift to his sister.The Briars made no other gifts in 2010. They each signed a timely election to treat the $30,000 gift as made one-half by each spouse.Disregarding the applicable
On April 1, 2011, 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 Roberts’
In 2008, 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 2011 for each bond outstanding. The preferred stock had a fair market value of $15 per share. What is the recognized gain
Claudio Corporation and Stellar Corporation both report on a calendar-year basis. Claudio merged into Stellar on June 30, 2010.Claudio had an allowable net operating loss carryover of $270,000.Stellar’s taxable income for the year ended December 31, 2010, was$360,000 before consideration of
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.
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 corporate
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 LIFO.
Pursuant to a plan of corporate reorganization adopted in July 2011, Gow exchanged 500 shares of Lad Corp. common stock that he had bought in January 2008 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
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
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
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 statements is
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
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 of
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.
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.
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.
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
An S corporation may deducta. Foreign income taxes.b. A net Section 1231 loss.c. Investment interest expense.d. The amortization of organizational expenditures.
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 debt
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
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